Armed Forces: Reserve Forces
	 — 
	Question

Lord Trefgarne: To ask Her Majesty's Government what provisions exist within the public sector, and especially the National Health Service, to allow staff the necessary time to serve in the Territorial Army and other Reserve Forces.

Baroness Garden of Frognal: My Lords, the Government are committed to taking the lead as an employer of reservists. The Ministry of Defence works closely within the public sector to establish best practice; this includes providing standardised special paid leave for training, providing visible leadership, promoting the benefits of reserve service and also monitoring reservist employee numbers. In collaboration with the Defence Medical Services, the Department of Health traditionally provides a major part of the military medical manpower and has provisions in place to allow its staff to serve in the reserves.

Lord Trefgarne: My Lords, since the Army will increasingly continue to rely on territorial forces, in particular to man its medical services, is it not incumbent on the National Health Service to ensure its staff are able to take time off to attend to those duties? Is there anecdotal evidence that hospitals are being-understandably-difficult in that regard?

Baroness Garden of Frognal: My Lords, in Scotland the NHS boards have implemented a national HR policy covering training and mobilisation of reservists in which staff are allowed a minimum of 10 days of special paid leave and so on. Outside Scotland the HR policy is devolved to individual trusts and boards. It would appear that there is no centralised policy, so many organisations have no idea if they employ reservists and do not always record whether an employee is in the reserves. There is evidence to suggest that if leave is requested it is recorded as special leave, similar to jury duty, and so we are not entirely aware of the exact position.

Lord Walton of Detchant: I must declare an interest. When I was demobilised from the Royal Army Medical Corps on emergency commission in 1948 I joined the Territorial Army and served for 16 years, eventually commanding the 1 Northern General Hospital TA. At that time there was an agreement that the TA would never be called out except in the event of a world war. Of course, the situation has changed beyond all recognition and members of the successor unit to mine, the 201 Field Hospital, have served with great distinction in the Gulf, Iraq and Afghanistan. They found that experience to be invaluable, professionally and in many other respects. However, does the Minister agree that there is now growing concern that, under new plans, the Reserve Forces may be called out more frequently, that their employing authorities may be reluctant to give them the leave of absence that is necessary, and that such frequent recalls would have an adverse effect on their career progression within the NHS?

Baroness Garden of Frognal: I commend the noble Lord for his service, and will add that we also have evidence that medical reserves develop additional skills, which they bring back to the NHS at the end of their deployment. For instance, the National Institute for Health Research has brought both military and civilian trauma surgeons and scientists together to share innovation and research. This has also been to the benefit of civilian trauma patients. I hear what the noble Lord says about the concerns within the service. We hope the consultation that is about to take place will allay some of those fears.

Lord Ribeiro: My Lords, I have seen the Defence Medical Services-many of whom are reservists-in action at Camp Bastion in the past year. Will there be a commensurate increase in the medical services when the Reserve Forces are increased?

Baroness Garden of Frognal: That is an interesting question. Obviously there will be a need for medical services, which will have to be provided either by regular troops or reservists. On how the balance will pan out, again, we need to wait to see what the need is and then make sure that the need is met.

Lord Touhig: My Lords, in the Minister's previous answer she made reference to the contribution that people who have served in our Reserve Forces bring back to their companies. Many companies across the country will testify that when their reservist staff return, they have had new experiences and gained new skills, and add value. Can we make sure that those good stories are spread throughout the public sector as well so that people can see that there is a huge value in allowing their staff time to serve in the Reserve Forces?

Baroness Garden of Frognal: I entirely agree with the noble Lord that a great deal is brought back. Of course, we have to balance that against the disadvantage that employers see in having their people away for set periods of time. Under the proposals of the new consultation that should be more manageable-employers should have more notice of when it is going to happen-and we hope that all the good stories that the noble Lord has highlighted will be evidence that having reserves in your employment is a good thing.

Lord Palmer of Childs Hill: My Lords, on Friday 9 November, my noble friend Lord Astor reported that 75 members of the Reserve Forces had been called out in the year to date under Section 56, which allows continued permanent service. He also reported that 530 reservists are currently deployed in Afghanistan. Can my noble friend Lady Garden say how many of these are currently employed in the NHS, and what positions they hold?

Baroness Garden of Frognal: My noble friend picks up an interesting point. We do not currently keep statistics about Reserve Forces membership. It is not asked for and nor is it necessarily supplied, so it is not possible to give an accurate figure. We have an estimated figure of 2,400 clinical staff in the reserves, but this excludes auxiliary staff who may serve in other, non-medical reserve units.

Lord West of Spithead: My Lords, I had not intended to ask a question but I was rather shocked by the response to the Question of the noble Lord, Lord Trefgarne. It seems from what the Minister said that we do not quite know how we are going to provide these people from within the National Health Service; that we have no knowledge of exactly how many people are part of the Reserve Forces anyway; and that there is no central ability to monitor any of this. Can the Minister reassure me that we have got a grip on this and that we are not stepping into the unknown?

Baroness Garden of Frognal: I think that the noble Lord somewhat misunderstood me; perhaps I was not clear. I said that individual trusts do not necessarily have a note of which of their people are reservists when they are away. However, the overall tally of reservists is monitored for numbers and a note is kept of the numbers we have and how many we will need. We hope that the consultation paper will clarify how we can keep a record of that.

Lord Tunnicliffe: My Lords, the use of the reserves is absolutely crucial to achieving military objectives. Can we be more specific on the matter of policy? Command 8475, Future Reserves to 2020, envisages a kitemark with graduated levels from basic to top level, and in Appendix C it envisages an employers' charter for reservists. Can the Minister assure me that all parts of the public service will achieve the top level in the kitemark and will sign up to the charter?

Baroness Garden of Frognal: These matters will be discussed in the consultation paper that has been issued. However, it is not intended that this will be imposed on all employers. We must talk with employers to ensure that the reservists they have on their staff also fit in with their employment needs. Of course, we hope that the kind of employers mentioned by the noble Lord, Lord Touhig, will see all the advantages and will wish to sign up to the highest levels.

Economy: Quantitative Easing
	 — 
	Question

Lord Barnett: To ask Her Majesty's Government what evidence there is that quantitative easing is working.

Lord Sassoon: My Lords, the Bank of England has estimated that the first round of quantitative easing reduced gilt yields by one percentage point, raised real GDP by around 1.5% to 2%, and increased inflation by around three-quarters to one-and-a-half percentage points. The Bank has also launched the funding for lending scheme to reduce bank funding costs and provide a strong incentive to make loans to companies and households cheaper and more easily available.

Lord Barnett: My Lords, therefore without QE, the recession would have been even worse. Is the Minister aware that since then, the Governor of the Bank of England said that the MPC would have to "think long and hard" before it restarted QE. The deputy governor said that it would be inappropriate to go on with it because there is no appetite to borrow and invest. On top of that, the chief economist of the Bank of England said recently that the economy is stuttering to start. He said that after knowing all that the Government are now proposing. What else are they going to do?

Lord Sassoon: My Lords, first, since the noble Lord talks about the state of the economy, we should recognise that employment is at a record high; inflation, for which the MPC has responsibility, has come down very significantly; the trade deficit is down; and the economy is growing again. We really do not need too much unreasonable doom and gloom. I could cite many other recent quotes from the Bank of England, which has made its position completely clear. In October 2012, the governor said that the MPC stands,
	"ready to inject more money into the economy".
	As, when and if it thinks the assessment is right, it is free and able to do it.

Lord Low of Dalston: My Lords, what is the Government's latest estimate of the reduction they have achieved in the deficit since taking office? Is it still a quarter? Will the noble Lord assure the House that that is more than would have been achieved at this point by the previous Government's deficit reduction strategy, as evidenced by the Office for Budget Responsibility's pre-Budget forecast in June 2010?

Lord Sassoon: My Lords, we are straying a bit from the effect of quantitative easing and on to the Government's fiscal policy, for which the Bank of England is not responsible. However, the fiscal deficit that we inherited has been cut by over a quarter. We are on track. As to what would have happened under a Labour Government at this point, the independent research shows that the country would have been left with an additional £200 billion of debt on top of the present Government's plans.

Lord Taverne: My Lords-

Lord Peston: My Lords-

Lord McNally: I think it is the Liberal Democrats. We have had a Labour Member and a Cross-Bencher.

Lord Taverne: My Lords, there is an urgent need in British industry for long-term loans for SMEs. The trouble is that our banks are not very good at this. Banks in Germany, France, the Netherlands and Canada are much better. Will the Government seriously consider following their pattern and setting up an investment bank or institution that specialises in providing such loans, perhaps modelled on the German Kreditanstalt für Wiederaufbau?

Lord Sassoon: My Lords, we are putting together a British business bank in order to bring together the various schemes that SMEs and all companies have access to. I entirely agree with my noble friend that this is an ongoing and very serious issue. We will continue to use the strength of the Government's balance sheet, which is due to the credible deficit reduction plan, to back up schemes such as the infrastructure guarantee scheme, which goes precisely to one part of the demand and need for long-term bank finance. We will, and have already, come forward with schemes, because I completely agree with my noble friend that this is a critical area.

Lord Peston: My Lords, could the Minister just clarify his Answer a little? Is he saying that the economy is now on a continuous expansion path of a sustainable nature, and therefore that everybody else-all the experts who say that there are nothing but bad times ahead-is mistaken? Is that the Government's view?

Lord Sassoon: My Lords, I merely stated that, on the last numbers from the ONS, the economy is growing again. If we bring this back to the subject of the Question-quantitative easing-the Bank of England's analysis of 23 August is that economic growth would have been lower in the absence of the asset purchases and unemployment would have been higher.

The Lord Bishop of Ripon and Leeds: My Lords, the Bank of England accepts that quantitative easing has pushed up the value of equities and other assets, so favouring the 5% of households which own 40% of those assets. Have the Government any plans to recoup any of this windfall gain that has accrued to the wealthy?

Lord Sassoon: My Lords, what the Bank of England has been doing through the quantitative easing programme has been targeted at 2% inflation but it has been completely clear about the other effects of the policy on the economy, GDP, inflation and equity prices-it says that that was a large but uncertain impact, estimated within the range that the right reverend Prelate gave. It is wrong to see that as a one-off windfall. In that case, was it a one-off disastrous fall in asset prices caused by the banking crisis that preceded it? It is difficult to say what was the one-off windfall.

Lord Eatwell: My Lords, the Treasury announced on Friday that it is to take over part of the Bank of England's profits from the quantitative easing programme to offset the fiscal deficit. What provision is to be made in the national accounts for those funds to be returned when, as the Governor anticipates in his letter to the Chancellor, interest rate differentials are reversed?

Lord Sassoon: My Lords, these were never the profits of the Bank of England, so I am afraid that the noble Lord, Lord Eatwell, has got it wrong. They were always profits that would fall to the Treasury-to the taxpayer. All that has been done by the announcement on Friday is very sensible, prudent cash management to make sure that £11 billion-in total, £35 billion-of taxpayers' cash is not sitting idle at the Bank of England but is used to pay the Government's bills. That is prudent cash management.

Health: Obesity
	 — 
	Question

Baroness Cumberlege: To ask Her Majesty's Government whether they will include obesity as a priority for primary care in the Quality and Outcomes Framework for general practitioners.

Baroness Cumberlege: My Lords, I beg to ask the Question standing in my name on the Order Paper. In so doing, I declare my interests as set out in the House of Lords register. Perhaps I ought to add another: I love my food.

Earl Howe: My Lords, the Quality and Outcomes Framework already includes obesity. The process for reviewing clinical and public health indicators in that framework is overseen by the National Institute for Health and Clinical Excellence, which recommends changes annually for consideration as part of the GP contract discussions. NICE will continue to lead on this process but from April 2013 priorities for public health indicators will be set by Public Health England in consultation with the devolved Administrations.

Baroness Cumberlege: My Lords, I thank my noble friend for that full Answer. Does he agree that one of the successes in primary care has been the introduction of the Quality and Outcomes Framework, which incentivises GPs? Unfortunately, one of the incentives is to keep a register of obese patients-nothing else, just a register. In fact, that incentivises them to keep people fat. Does my noble friend also agree that obesity, which is forecast to cost the nation, or the NHS, £45 billion, needs prompt action? Will he assure me that under the new reforms that he just mentioned, Public Health England will prioritise the development of these indicators in the Quality and Outcomes Framework?

Earl Howe: My Lords, as my noble friend knows, the Secretary of State will set the strategic objectives and policy priorities of Public Health England. It will have operational autonomy and operate transparently. Rates of obesity remain high across England and continue to have clear links to health inequalities. GPs can play a key role in making every contact count by raising the issue of obesity and providing advice or referral to appropriate services, so I do not necessarily accept the criticism that my noble friend levelled at the current QOF indicators. GPs have every reason to act when they see obesity in front of them. I cannot pre-empt exactly what Public Health England will wish to prioritise in the development of the QOF, but I fully expect that it will want to work with NICE to review the evidence base for building on the current QOF obesity indicator.

Lord Hunt of Kings Heath: My Lords, I am sure that the noble Earl will agree that action on obesity is best taken when different government departments play their part. If he accepts that, does he regret the abolition of the Cabinet sub-committee on public health?

Earl Howe: My Lords, the role of Public Health England will undoubtedly stretch across government departments, because it should and will involve energising the efforts of not just the Department of Health and at not just national level. However, I agree that there is no single magic bullet to solve the problem of obesity. The call to action on obesity published last year set out a range of actions in which government and individuals, as well as local organisations, need to engage if we are to beat this threat to public health.

Baroness Finlay of Llandaff: Are the Government considering including in commissioning from health service employers a requirement to address obesity in their staff at all levels, given that the staff are often quite severely obese and act as a very poor role model for those patients whose obesity should be being addressed?

Earl Howe: My Lords, this is a very important point. Dame Carol Black and I chair a network within the responsibility deal in the Department of Health which draws together employers from a range of sectors to address health in the workplace. It is a tremendously important opportunity if we can engage employers to realise that it is in their direct interest to ensure that their employees enjoy good health and lead healthy lifestyles.

Lord McColl of Dulwich: My Lords-

Lord Foulkes of Cumnock: My Lords-

Baroness Jolly: My Lords-

Lord McNally: I suggest that we hear from the noble Lord, Lord McColl.

Lord McColl of Dulwich: I congratulate the Government on rejecting the misleading advice of that quango, NICE, which misled politicians by denying that the answer to the obesity epidemic was to eat less. What plans are there to prevent NICE making such serious mistakes in the future?

Earl Howe: I congratulate my noble friend, as ever, on his powerful advocacy in this area. He is absolutely right that NICE recognises in its guideline that dietary management, including calorie intake, is of predominant importance in battling obesity. It does, however, recognise that exercise is important. It emphasises that although an individual's ability to be physically active may be hampered by their level of fitness, recommendations can be built up gradually. It is a balance. NICE will continue to act as a source of advice for the medical profession. It is an independent organisation, as my noble friend understands, and Ministers consciously do not interfere with its operational integrity or independence. However, we expect it to take advice and evidence from a range of clinical sources.

Lord Foulkes of Cumnock: My Lords-

Baroness Jolly: My Lords-

Lord Elystan-Morgan: My Lords-

Lord McNally: I suggest we hear from the noble Lord, Lord Foulkes.

Lord Foulkes of Cumnock: My Lords, I, too, have an interest to declare; I think it is fairly obvious if you look at me. That is why I want to ask a serious question of the Minister. Will he say to medical practitioners and others that it does not help to be critical and condemnatory of those of us who are obese? It is important to give information and encouragement. Otherwise, there can be complications and people can end up with depression and other illnesses, so it is very important to give encouragement. I am glad to say that that is why I have been able to lose more than a stone in the past month.

Earl Howe: Not for the first time, the noble Lord is an example to us all. I agree with the point he makes about the way in which doctors engage with their patients on this often sensitive subject. That is why the previous Government very commendably put in place a suite of resources to guide GPs in this area. Those have since been supplemented by electronic training modules on the identification and management of obesity and supporting behaviour change in patients. NICE has produced a clinical guideline to supplement its advice on obesity and exercise to guide clinicians on exactly how they approach this topic.

Tourism: Chinese Visitors
	 — 
	Question

Lord Lee of Trafford: To ask Her Majesty's Government what steps they are taking to encourage Chinese visitors to the United Kingdom.

Lord Lee of Trafford: I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as the chairman of the Association of Leading Visitor Attractions.

Viscount Younger of Leckie: China is a priority tourism market. Compared with five years ago, there has been a 39% increase in visitor numbers from China, a 111% increase in nights they spend in the UK, and a 97% increase in their expenditure while they are here. VisitBritain is investing more than £125 million in a major four-year international promotional campaign in key overseas markets. The Government also recently announced additional funds for the GREAT campaign to drive trade and tourism from China. We are making the visa application process more user-friendly for Chinese visitors.

Lord Lee of Trafford: My Lords, that is all very well, but at present a potential visitor from China must fill in a 30-page visa application form in English and find £650 for a family of four in visa fees and air passenger duty. Is it therefore surprising that mainland Europe gets four times as many visitors from China as we do? I know that my noble friend is a great supporter of tourism. He led the last tourism debate in your Lordships' House. However, when are the Government going to take tourism seriously? When are they going to fund VisitBritain properly, realise that its chairmanship is not a two-days-per-week job, and bring tourism into the title of DCMS? Is it not time that we had a national champion for tourism? Perhaps the noble Lord, Lord Coe, could take that on as part of his Olympic legacy.

Viscount Younger of Leckie: We must do all that we can to keep visa application costs down, even though research backed by the tourism industry shows that visa costs and indeed the process for applying are not a significant barrier to in-bound Chinese tourists. It is true that the cost of a UK short-term visa is £78. A Schengen visa is less, at £50, although this cost is expected to increase when the biometric capture is included in the near future. A UK visa has biometric capture, which we regard as important for our security. It is worth pointing out that by 2030 China will have 1.4 billion middle-income consumers. There is therefore a great opportunity for us all to capture some of this market in the future.

Lord Berkeley: My Lords, does the Minister agree that comparing the whole of Schengen-more than 20 member states-with one country here and saying that their visa costs are a bit lower is not really the answer? Once one has bought a Schengen visa, one can go around all these states; just one visa is needed. Worse still, to get a visa to come to this country, Chinese people must give up their ID cards for eight weeks, I believe, which is quite serious. Is there not more that the Government could do to rebalance the problems of coming here compared with going to the continent?

Viscount Younger of Leckie: The noble Lord makes a very good point. I can reassure him that much is being done as we debate on this issue. I am not in a position to give any more details than that. However, we are aware that tourism in the UK is the fifth biggest industry and the third highest export earner, generating £115 billion in direct and indirect business for the economy and supporting 200,000 jobs. There is therefore much to bear in mind when we look at streamlining and sorting out the issues.

Lord Clement-Jones: My Lords, is it not a fact that tourism from China is a fraction of what it could be? One way of dealing with this is to waive visas for trusted Chinese tour groups, which are already closely controlled through the bilateral approved destination status agreement between China and Great Britain.

Viscount Younger of Leckie: I cannot comment on my noble friend's suggestion but it is possible that that is being looked at as well, as part of a review that is going on. Again, I am not in a position to give any more information on that.

Lord Bragg: My Lords, is the Minister aware of the severe damage being done to British universities and larger long-term British interests by the heavy restrictions on those Chinese visitors known as students? Does he realise that Leeds University, of which I am chancellor, is only one of the many universities in the UK that are suffering financially every year-and in the long term massively-through these ridiculous, unfair and unbelievable restrictions on Chinese students as well as Chinese visitors?

Viscount Younger of Leckie: The noble Lord makes a point about Chinese students; the Question relates more to Chinese tourism. But, having said that, it is very important indeed that we encourage all Chinese citizens to come to Britain, whether they are students or tourists. There is much going on in terms of marketing Britain abroad to China. VisitBritain has a £100 million marketing fund, jointly funded by the DCMS and the private sector. To answer the noble Lord's question to this extent, it is particularly important that we improve the perceptions of the UK. By that, we should improve digital marketing, invest in trade engagement and improve the packaging and promotion of the UK to Chinese visitors.

Lord Dholakia: My Lords, is the recently announced increase in the visas for these Chinese visitors not at the expense of visitors from the Indian subcontinent?

Viscount Younger of Leckie: I can reassure my noble friend that that is not the case.

Disabled Persons' Parking Badges Bill
	 — 
	First Reading

The Bill was brought from the Commons, read a first time and ordered to be printed.

Scrap Metal Dealers Bill
	 — 
	First Reading

The Bill was brought from the Commons, read a first time and ordered to be printed.

Prevention of Social Housing Fraud Bill
	 — 
	First Reading

The Bill was brought from the Commons, read a first time and ordered to be printed.

Town and Country Planning (Fees for Applications, Deemed Applications, Requests and Site Visits) (England) Regulations 2012
	 — 
	Motion to Approve

Moved By Baroness Hanham
	That the draft regulations laid before the House on 17 July be approved.
	Relevant document: 7th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 6 November.
	Motion agreed.

Benefit Cap (Housing Benefit) Regulations 2012
	 — 
	Motion to Approve

Moved By Lord Freud
	That the draft regulations laid before the House on 16 July be approved.
	Relevant documents: 7th Report from the Joint Committee on Statutory Instruments, 10th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 6 November.
	Motion agreed.

Financial Services Bill
	 — 
	Report (2nd Day)

Clause 6 : The new Regulators
	Amendment 25A
	 Moved by Lord Flight
	25A: Clause 6, page 20, line 37, at end insert-
	"(5A) In discharging its general functions the FCA must have regard to the desirability of not requiring the persons whom it regulates to observe any principles, rules or requirements that extend beyond those directly arising under the requirements of the EU single market legislation and of any other EU obligation (as defined in the European Communities Act 1972) or any directly applicable EU legislation, or of any related technical standards or guidance."

Baroness Anelay of St Johns: My Lords, perhaps I may remind noble Lords who are seeking to leave the Chamber rather than listen to my noble friend Lord Flight that it is a courtesy of this House that they do not walk in front of him as they are leaving. I mean my own colleagues on my left.

Lord Flight: My Lords, Amendment 25A stands initially on its face. It proposes that the FCA should have regard to the desirability of not gold-plating EU directive regulations for the financial services industry. I have tabled it particularly in the context of the RDR reforms due to go live at the beginning of next year because the European Parliament has voted quite decisively not to ban commission as a form of remuneration. The German Government have elected to retain the commission structure for Germany's IFA industry. It is my great concern that proceeding with RDR will ultimately cause grave damage to saving levels in this country but, more particularly, will rob the great majority of people of any access to financial advice. They will be left having to do it themselves or to buy the products of the large banks, which are not necessarily bad or good, but are, ironically, products on which commission will be paid.
	I am certainly not attacking extremely professional financial advisers, many of whom have functioned on a fee basis for some considerable period. The reality is that their clients are upmarket clients. They are the elite. The great majority of people, to the extent that they save, do it occasionally. In my observation, they are extremely unwilling to pay fees, and it is uneconomic for them as well. Every time anybody phones their accountant or their lawyer, the clock ticks and they get a bill, so they do not do it any more than they can help. The existing sensible practice is that ordinary folk phone up their IFA from time to time to discuss the bit of money they have to invest and they have a sensible exchange. Only if some form of investment is made does remuneration by commission come into effect.
	My first big criticism of RDR is that it is elitist. It is fine for the better off or for financial intermediaries who have those sorts of clients, but for the great majority it is not fine at all. I estimate that some 5 million people will be left without any form of advice as RDR works its way through. Although the FSA has sensibly committed to a review later on, by the time that happens it will be closing the stable door after the horse has bolted because there will be a very limited number of IFAs left.
	On 7 September, the FSA announced that RDR would go ahead from the beginning of next year, but it gave individual IFAs the ability to apply for a waiver if they were not ready. It did not specify the conditions for the waiver being granted, nor is it clear whether the FSA has the staff to deal with what may be many applications. A money marketing survey as recently as September found that only 36% of financial advisers had their statement of professional standing. That means that 22,000 financial advisers are not going to be RDR compliant. The FSA stated that 91% were, but I do not know the basis for that figure. It is significantly in conflict with the latest information.
	In the face of RDR, the financial advice industry is already contracting. There was a 6.2% reduction this year, and over the past two years there has been a 10.6% fall. That represents 4,300 financial advisers ceasing to be in business. If each of them had 600 clients, that is about 2.5 million people who no longer have access to financial advice. Under the new regime, it will be uneconomic for those financial advisers who survive to have occasional clients because the fee level they would need to charge for the work they would have to do is considerably higher than people would be willing to pay.
	There is the separate problem that many financial advisers are not young-perhaps 50 to 70 years old. Many have been in practice for 20 or 30 years and many, despite the unfair criticisms that are often made, have a clean bill of health with their clients. However, unlike everyone else they are not being grandfathered and people of that vintage are extremely unwilling to take examinations in their modern form, having not taken any for ages. Many find the examination syllabuses not particularly relevant to their part of the industry, so older IFAs are not, in the main, willing to take the examinations, and are likely to close shop instead.
	I asked the other day whether the Government were considering requiring regulators to have exam qualifications. The answer was no. This seems somewhat ironic when the SFA has refused to budge on grandfathering well performing, long-standing IFAs. The Financial Ombudsman's findings show that in the main the sinners have been the large banking institutions, and that the record of IFAs-I am not saying they are all wonderful-has actually been fairly good; the ombudsman has mostly found in their favour.
	The bottom line is that the Treasury Select Committee very powerfully advised a pause. In my experience, the investment management industry in the main is highly critical of RDR but has felt it not worthwhile raising its criticisms because RDR was going to happen anyway and it did not want to upset the FSA. Many advisers have now spent a lot of money on installing systems to deal with RDR. I believe that there will be a significant shambles in the savings industry next year. The life insurance companies I talk to tell me that their systems are nowhere near ready and that they are not at all clearly organised about how to conduct their business in a post-RDR world. There is a very powerful argument at least for pause or, if not, for some adaption.
	Historically, those advising small and medium-sized companies on their pension arrangements were remunerated by life insurance companies discounting their series of charges over 25 years and paying the advisers up front to cover the cost of the work. That is no longer being permitted. The SMEs are simply unwilling and unable to pay the sort of fees that are economically required. I believe the buzzword is "factoring", but unless factoring-a present-value calculation of future commissions-is one way or the other permitted there will be a particular problem with small and medium-sized companies, with all they need to do to reorganise their pension schemes, where they are generally not in position to pay the sort of fees that this will cost.
	I greatly urge the Government to follow-for once-the EU and to accept the EU's finding on RDR reforms that there is an ongoing role for commissions. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, my noble friend raised some very interesting points. Of course the RDR issue has two parts. He referred to the basis for charging, but there is the qualification aspect as well. RDR will require advisers to get QCF level 4, which is only A-level standard. It does not seem to me to be too much to ask that people who are advising on savings should have an equivalent of an A-level qualification. I rather support the idea that RDR should endeavour to encourage the emergence of a profession. He referred to the fact that the profession was largely an elderly one and that we needed to encourage some new, younger blood. Careers will be more likely to be attractive if the idea of RDR with some qualifications-making you like the solicitor and accountant in your high street-comes to pass.
	My noble friend's second point was about the method of charging. We have here the question of how we square the circle between the reluctance to pay fees and the need for continuing advice. If you have a pension scheme that will last you for 15, 20 or 25 years, you need someone who is prepared to step up and advise you as to how it is going ahead. My problem is that we are now sufficiently far down the track on the idea of fee paying and the ending of commission. There is no doubt that commissions were raised not so much from the IFAs but often from the producers, to try to make the sale of the product more attractive. I do not think, as my noble friend said, that by any manner of means the IFAs have been the only people to blame, but we are sufficiently close to the start now that we need to continue with the approach of fees. It is not ideal, but I think that order plus counter-order would equal disorder. We have been marching the IFA community towards a fee-based remuneration schedule for two or three years. To pull back in the middle of November, when it is due to go live on 1 January, would cause the most enormous difficulties for the producers and the industry.

Lord Naseby: My Lords, I was not intending to take part in this debate. At one time, I was chairman of the Children's Mutual, which was a friendly society/insurance company. At the weekend, in Northampton, I had discussions with some friends whom I would call middle-class savers. Not a single person, frankly, was the least bit prepared to pay a fee. It goes deeper than that. One's own children are not prepared to pay fees up front.
	There may have been much wrong with the old system in that it was not as closely scrutinised as it should have been in terms of the total cost to the saver. Nevertheless, here we are three and a half years into a major austerity programme and sufficient resources are not available for people who are genuinely wanting to or having to save. I do not know what the minimum fee will be and perhaps my noble friends on this side will be more up to date on that. I cannot see that it can be less than £500, if not considerably more.
	I say to my Front Bench that it is all very well ploughing on because this has to happen in January but, as an aside, I reflect on how the FSA took three and a half years to realise that the projections on pensions were totally out of court. We have all been living with a base rate of 0.5% for a couple of years. Here we have projections approved by the FSA at, I think, 5%, 7% and 9%. That was totally out of court and nothing happened from the FSA. There had jolly well better be a plan B somewhere in the hip pocket because I very much fear what will happen. During the first three or four months nothing much will happen but, thereafter, there will be a major crisis unless there is a plan B ready to deal with it.

Lord Sassoon: My Lords, my noble friend Lord Flight has spoken eloquently on the issue of the retail distribution review both on this and a number of other occasions, both when we have been discussing this Bill and at other times as well. Clearly, his concerns go to the heart of the RDR. I respect him for the force and strength of his arguments and for the clarity with which he has put them. However, I think that my noble friend Lord Hodgson of Astley Abbotts, in his short remarks, takes a more realistic and pragmatic view of some of the things that are necessary in the RDR and of the practicalities of where we are now some five or six years into the process which was initiated back then by the FSA.
	The RDR certainly goes beyond the requirements of the markets and financial instruments directive; that is true. It is to be implemented at the end of this year. It will, among other things, as we have heard, prevent product providers from offering commissions to advisers. These rules will go beyond the requirements of the directive, which does not prevent product providers paying inducements to intermediaries. I think that it is a bit of a leap from there to say that the EU has taken a positive view that commissions should be paid in the way that they have been to date, as I think my noble friend possibly recognises.
	The Government are supportive of the RDR, which is intended to address long-running problems that impact on the quality of advice and consumer outcomes in the UK retail investment market. The financial detriment caused to consumers as a consequence of poor, biased financial advice leading to the mis-selling of products cannot be overstated and has led consumer groups such as Which? to support the measures in the RDR. For example, following the FSA's pensions review in 2002, 1.7 million consumers received compensation totalling £11.8 billion due to pension mis-selling alone. More recent scandals such as Arch Cru, where between 15,000 and 20,000 people lost out on thousands of pounds because they were told that high-risk investments were low risk, demonstrate the devastating effects of poor financial advice. Indeed the FSA has estimated detriment to consumers to be in the region of £223 million per annum, so we cannot wish the problem away.
	To tackle the problem, the RDR will raise the professional standards of investment advisers, address the potential for adviser remuneration to distort consumer outcomes and improve transparency for consumers. As part of this, the rules banning commission payments to advisers will tackle the risk as well as the perception that commission paid by product providers may bias advice, and rules requiring advisers to agree their charges upfront will promote transparency for consumers. Taken as a whole, the Government's view is that the RDR should improve consumer confidence and trust in investment advice and it fits with the Government's wider agenda on increasing transparency in the market.
	I am not going to repeat all I said in answer to my noble friend's recent Question, which led into the points about training. Again, while he and my noble friend Lord Naseby are quite right to raise concerns around the transition, I think that my noble friend Lord Hodgson of Astley Abbotts is right to point out the need for and desirability of professionalisation, but also that the bar has not been set excessively high. I do not want to trade data, but I think that this is quite important. The FSA's latest research shows that the proportion of advisers who meet the RDR's new qualification requirements has increased from 50% in summer 2011 to 71% in spring 2012. The FSA research also shows that 93% of advisers are still on track with their prediction-93%, not 91%. I know that my noble friend challenges that, but the FSA has looked at this very carefully and its advice and research shows that 93% are still on track with its prediction to complete the appropriate qualification in time.
	Having said all that, I should just spend a minute on the amendment itself. As we discussed in Committee, the FCA and the PRA will be required to have regard to the principle that any burden they impose should be proportionate to the benefits that flow from it. This proportionality principle will apply to any proposed requirement whether it originates in EU law or purely domestically, so it already covers gold-plating. I would also point the House to government Amendment 44, which we will be debating in due course, and which adds a new regulatory principle giving the regulators the duty to have regard to the desirability of sustainable UK economic growth. That is a principle that will apply also to both the FCA and PRA. I am sure they will take it very seriously when they consider gold-plating. It will also be pointed out to them as a hook, as it should be, to avoid unnecessary gold-plating. So, in short, I do not believe that the amendment is necessary, nor does it fit with the Government's wider aims in this area. I hope that my noble friend will feel able to withdraw it.

Lord Flight: My Lords, first, I am glad to learn that the amendment taken at its face value is not necessary, in the sense that the FCA already has the obligation when implementing EU directives to have regard to proportionality and reasonableness. With regard to the RDR situation, I remain of the view that the FCA, the FSA and the Treasury are complacent about what is going to be quite a serious situation for those who are not professionals, are not used to paying fees and have modest savings, who will be left with very few conduits. That is a particularly undesirable outcome.
	I do not entirely agree with the noble Lord, Lord Hodgson. Clearly, yes, the industry wants to become professional going forward, but the point that I was making with regard to qualifications was about grandfathering existing practitioners. I would repeat the noble Lord's comment, in that I hope that the Treasury has plan B in its back pocket-and, for that matter, I hope that the FSA has plan B in its back pocket. My understanding is that by no means all the senior members of the FSA are entirely happy about RDR.
	It is clear that it is not appropriate to put this amendment to a vote, but it has at least served to air a subject that has been rather ignored in both Houses of Parliament. I beg leave to withdraw.
	Amendment 25A withdrawn.
	Amendment 25B
	 Moved by Baroness Hayter of Kentish Town
	25B: Clause 6, page 20, line 41, after "codes" insert ", including a code of conduct, as set out in section 1LA (Code of conduct), for the financial services industry"

Baroness Hayter of Kentish Town: My Lords, there can be little doubt that an enforceable code of conduct is sorely needed in this industry. Many banks publish so-called codes of conduct that read impressively. The Barclays code of conduct says:
	"We ... expect every Barclays employee, and others who work on our behalf, to conduct themselves according to consistently high professional and ethical standards. This expectation applies equally to all, whatever their role".
	This from the bank that sold PPI and whose employees fixed the LIBOR rate. HSBC encourages employees to make decisions based on,
	"doing the right thing but without ever compromising the ethical standards and integrity on which the company was built".
	Yes-that is the same HSBC that we learnt on Friday had been facilitating tax and AML-avoiding bank accounts in Jersey. Some integrity.
	The Chartered Banker Code of Professional Conduct, which sets out the ethical and professional attitudes and behaviours expected of bankers, has been endorsed by virtually every major high street bank. But there is clearly something missing. The words are there, but the behaviours do not follow. The code does not have the necessary sanctions to strike people off the register, nor does it have governing structures independent of the industry.
	Other professions have codes of conduct which are independently supervised and enforced. In the case of barristers and solicitors, the functioning and enforcement of these are overseen by the Legal Services Board. In the case of accountants, auditors and actuaries, they are overseen, and in the last resort enforced by, the Financial Reporting Council, which I noted before, sadly, gets no mentions in this Bill, despite the importance of its role. But here we are concerned with those bankers, and others, who do not belong to one of those professions and therefore have no individual code of conduct to cover integrity, the avoidance of conflict of interest and other behavioural matters. For them, there is no supervision of their individual behaviours, and no professional enforcement procedure; action kicks in only when specific rules are broken. This is not good enough for an industry that has shown itself lacking in the very attributes that this vital sector should have engraved in its DNA. The evidence read out about the last amendment by the Minister is ample evidence of that. It is an industry where conflicts of interest are too rarely identified, declared and avoided. LIBOR and PPI are examples.
	There is a Bank of England code for members of the FPC, but there is no requirement for a code for directors and senior executives of banks and other parts of the financial services. Yet as the noble Lord, Lord Turner, acknowledged, bank directors bear responsibilities to the public which go beyond those of other private sector directors. Any failure on their part is therefore,
	"of public concern, not just concern for shareholders".
	Hector Sants, then of the FSA, told the Treasury Select Committee that,
	"we should change the regulatory regime to ... ensure that people who have shown ... serial misjudgment are not allowed to run financial institutions again".
	However, where does this Bill stop them? Simply relying on the significant influence function procedure may not be enough and, anyway, it is a slow burn. If the person concerned moves abroad, no penalty is exercised and no bonus returned. Or if they apply for a significant influence function after some years, there may be no current or warm evidence or witnesses on which to base a decision. A code of conduct is needed to which these people must individually sign up and a breach of which should expose them to investigation and possible action. Without this, we will continue as before with all our interests at risk.
	I should note that the Government have accepted the need for a code to cover one aspect of banks' day-to-day work-the submission of rates for the LIBOR benchmark. Amen to that; we will welcome that shortly. However, surely it is nonsense to agree the need for a code for just one aspect of the banks' work, because it has been found wanting, but not to the myriad other decisions which banks and their staff take every hour of the day. The exact name of such a code may be debated: John Kay's review spoke of good practice; some professions call it a code of ethics. The principle is that it governs behaviours, outlaws conflicts of interest and is enforceable. It governs the profession of stewardship, which is what most of this industry is about.
	Since the Parliamentary Commission on Banking Standards was established, the BBA has launched a taskforce to investigate a code of conduct. However, I believe that a standards board run by the BBA-the organisation that administered LIBOR-would have zero credibility. A standards board must be independent of the industry, with the ability to set high standards, the tools to supervise the code and the power to strike off those who breach the code. The other professions' codes of conduct lay down exactly what is expected of people and we need the same for banking. Anyone who breaks the conduct code should be struck off, whether for market manipulation, gaming indices or deliberate mis-selling. People should not be allowed in banking again if they have mis-sold a product.
	I believe that confidence will not return until we strike off those whose conduct has let us all down. The details of the code need not detain us here. Amendment 31A, which is consequent on Amendment 25B, allows for the code to be drawn up by, we hope, the FCA and the PRA in consultation with relevant stakeholders. No one, I am sure, can argue against the intention of this amendment. I trust that the Minister will not argue against its wording. I beg to move.

Lord Peston: My Lords, I rise to support both of these amendments in the names of my noble friends. I think that my noble friend Lady Hayter is right to place all of this in the context of the experience of the past few years. The general proposition on which our discussion must be based is that, if the financial services sector misbehaves, we all suffer-not merely those who buy financial products directly, but everybody in the country. I use the word misbehave advisedly. Systemic risk and systemic events do not appear as if by black magic but result from the way that people who work in the financial sector conduct their business.
	Why do they occur? They occur because of the way that people in the sector do things. The solution to the problems must be found partly through regulation, as the Bill recognises. On the one hand, we must bring in regulation to deal with some aspects of this matter. On the other hand, improved behaviour by the enterprises operating in financial services is not merely required but urgently required, as I think my noble friend said. Until recent events emerged I, for one, was not aware of the lack of professionalism and the seeming total unconcern with ethical standards on the part of people in the sector. Whenever I reflect on it, I still find it astonishing that apparently decent people behaved like a bunch of crooks, not to put too fine a point on it. They did not mis-sell products by chance; they deliberately mis-sold them.
	Clearly, something must be done. My noble friends are right to see the Bill as the ideal vehicle for doing something, and for tabling amendments to it that would actually achieve something. The object is not to damage the sector, as it is a very important one that earns a lot of money for our economy, but to make it fitter for purpose, if I may use a cliché. My noble friend Lady Hayter is entirely right when she says that as a minimum-I underline "minimum"-there must be a code of conduct which is mandatory and enforceable. I was not clear whether she had in mind all sorts of penalties rather than just the most draconian of all of saying, "You cannot work in this sector again". Perhaps she will clarify that when she sums up.
	I hope that the Government understand all this. Certainly the public understand these problems. I also hope that the Government do not play their usual card and tell us that these amendments are not necessary because buried somewhere in some bit of fine print is an inferior version of what they do. In my judgment these amendments are necessary and the sooner we get them on the statute book, the better.

Lord Phillips of Sudbury: My Lords, I have amendments in the next group and so will keep most of my comments on this aspect of the Bill until then.
	I wholeheartedly endorse what the noble Baroness, Lady Hayter, said in moving this amendment and, indeed, what the noble Lord, Lord Peston, has just said. The problem for all of us, most particularly my noble friend the Minister, is to try to contrive a state of affairs for the future which is fundamentally different from that which has prevailed hitherto. I think everybody in the House agrees that we cannot go on as we have done. The City of London, which has been the jewel in our economic crown, is now so tarnished and undermined by its own conduct that its future is far from certain. I have been involved in the City of London since 1964. It has strayed so far from its own mottoes of "My word is my bond" and "May God direct us" as to become almost laughable-indeed, "tragic" is a better word.
	If one is to be hard-headed about this-there is no other way than to be extremely hard-headed when dealing with the financial sector-one has to own up to the fact that codes of conduct have not worked very well hitherto. One will find that nearly all the main actors within the City are members of professional, or quasi-professional, bodies that have codes of conduct, but the fact remains that, in the City and in other financial centres, the general level of conduct, particularly of what used to be called morals, has declined to an unsustainable point. We are not on our own but we are better than most. I say that while supporting the sentiment of the amendment because, frankly, even if it were on the face of the statute, it would not be worth a row of beans unless it were enforced.
	The great failing in our society, and in our financial sector over the past few decades, has been a lamentable gap between what the law requires and what is enforced on the ground. There is no shortage of criminal law to deal with most of the worst abuses that have occurred and are still occurring; we have a plethora of criminal law and probably more than any democratic society on earth, but the problem is enforceability. I hope that my noble friend will address that issue when he responds to the amendment because it is equally relevant to the next set and to other sets of amendments. Unless we can beef up the authorities that have the hugely difficult task of policing these hugely complicated measures, we cannot pretend that they will work. Some of the most fertile and brilliant brains in lawyering, accounting and so on are available for hire in the City to anyone prepared to pay their generous fees. Unless the measures that we emerge with at the end of this process are clear, you can be sure that they will be got around.
	The failure of our tax system, about which we hear more from month to month, is a classic tale of legislation that is unfit for purpose and, above all, an enforcement resource that is grotesquely unfit for purpose. Any one of the large banks can wheel out more lawyers and accountants to defend them from a single thrust from the regulator than the regulator has in its entirety. It is not David and Goliath; it is David, without his sling, and Goliath. This is a very difficult Bill to be leading on and this is perhaps the most difficult aspect of a difficult Bill but I hope my noble friend will have something to say on enforcement.

Lord Blackwell: My Lords, it is difficult to disagree with the objective of appropriate codes of conduct in this industry but I am left wondering what the amendment adds to the state of current regulations. As the noble Baroness will know, there is a regime of approved persons in the industry and to be an approved person, and to hold any position of responsibility in financial services, you are required to behave in accordance with a fairly clear code of conduct which covers many of the things that this amendment seeks to introduce. Before calling for the writing of yet another code, it would be helpful if the noble Baroness could explain what she thinks is omitted from the current code for approved persons, or whether it is an enforcement problem and, if so, how that would lead to better enforcement than currently exists under the approved persons regime. Otherwise, we are in danger of rewriting the same words over and over again.

Lord Barnett: My Lords, I strongly support my noble friend in her amendment. The noble Lord, Lord Blackwell, seems to be replying for the Minister, telling us why it is not necessary. Is it harmful to have this amendment in the Bill? If so, let him tell us how rather than asking whether it is necessary. As I would have expected, the case has been made very well indeed by my noble friend Lady Hayter and supported elegantly and eloquently by my noble friend Lord Peston. I hope the Minister will not take any notice of the noble Lord, Lord Blackwell, when he replies.

Lord Sassoon: My Lords, I always take a lot of notice of my noble friend Lord Blackwell. However, Amendments 25B and 31A raise a very important issue. The revelations during the summer about the attempts to manipulate LIBOR and Euribor demonstrated, if any demonstration were needed, that perhaps a considerable number of individuals in the banking sector have failed to live up to the most basic standards of professional conduct and that must, of course, be put right. We are tabling our amendments to this Bill to bring the setting of LIBOR within the scope of the regulatory regime and make it a criminal offence to attempt to manipulate benchmark rates, but that is only the first step.
	The critical issue here, which I think has been rather forgotten in this debate, is that the Government acted very quickly to establish the Parliamentary Commission on Banking Standards and the noble Baroness, Lady Hayter of Kentish Town, made a passing reference to it. The noble Lord, Lord Peston, suggested that I may fob the House off by saying I have another version-he would say an inferior version-of this in the Bill. I absolutely will not say this. I will say there is a superior answer to this very big problem coming from the Parliamentary Commission on Banking Standards. I entirely accept that there is a serious issue to be dealt with but the commission is established, it is doing its work and it will look at precisely what is needed to deal with the challenge.

Lord Peston: I must be a bit thick; I thought that the Parliamentary Commission on Banking Standards was not due to report until this Bill is passed into law. Where will its recommendations, assuming it makes any, then be passed into law?

Lord Sassoon: I will come on to that if the noble Lord, Lord Peston, will hear me out. Of course it is no good having a commission if its recommendations are not going to be taken seriously or enacted if necessary. We should remind ourselves of how this House is represented on the commission. It is quite striking that I do not see my noble friends Lady Kramer or Lord Lawson of Blaby in their places this afternoon, nor indeed the right reverend Prelate the Bishop of Durham or the noble Lords, Lord McFall of Alcluith and Lord Turnbull. Why are they not here? I believe it is because the commission is at work today looking into these very critical questions. Experience and authority is being brought to bear on these issues in order to identify ways to put the highest standards of ethics and professionalism at the heart of the UK banking system and I believe that we should leave the commission to do its work.
	I know, as do other noble Lords, that the commission will examine all possible solutions and of course the introduction of codes of conduct should be one of them. We have heard different views about the effectiveness of codes of conduct, but it is quite right for the commission to look at that. The commission has the membership and the tools it needs to do a very thorough job in this area and I do not think we should pre-empt it. It has the power to interview witnesses under oath and to send for the necessary people and papers. It has already heard evidence from, among others, Paul Volcker, the former chairman of the Federal Reserve, Martin Wheatley the chief executive designate of the FCA and from various members of the Independent Commission on Banking. The commission has already gathered an impressive range of written evidence from stakeholders, including the major banks, regulators and consumer groups, and that evidence was published last Thursday.
	So, given that the commission's work is ongoing, it is not the right time to make decisions on this very important matter. To do so would be to pre-empt and undermine the conclusions of the commission, which is investigating this issue so thoroughly.

Lord Barnett: My Lords-

Lord Sassoon: I will give way to the noble Lord, Lord Barnett, in a moment but perhaps I may answer specifically the question of the noble Lord, Lord Peston.
	The Government look forward to receiving the commission's report and recommendations and will consider them with great care. It is due to report by the end of the year. As to when we might legislate, as the House knows, the Government will introduce the banking reform Bill, which was published in draft last month, into Parliament in the new year. That Bill may well provide an appropriate vehicle to implement any of the commission's recommendations that require legislation. So we certainly will not lack a possible legislative vehicle, in the right timeframe, when the recommendations are made by the commission.

Lord Barnett: My Lords, the noble Lord has not hesitated, quite rightly, to put the LIBOR scandal amendments in this Bill. Now he is saying that he does not want to put in the code of conduct in case the commission comes up with it. In that case, why has he put the LIBOR scandal amendments in the Bill?

Lord Sassoon: My Lords, the Government kicked off a number of inquiries and reviews immediately we became aware of the LIBOR scandal. Martin Wheatley, the managing director of the FSA and the chief executive designate of the FCA, carried out one of the reviews which have led directly to the amendments in this Bill. We have acted on his amendments specifically addressing criminal offences and so on around LIBOR in this Bill. We also set up the commission to look at the wider question of professional standards and the way that banking operates and it will report by the end of the year. We will have a legislative vehicle in the new year, if required, to take up its recommendations, which the Government will take very seriously.
	It is not that we are dragging our feet or want to stop these issues being addressed. It would just seem foolish to pre-empt a commission of great eminence which is doing enormously important work as we speak. I hope that, on that basis and the confirmation I have given about what is going on, the noble Baroness will be persuaded to withdraw her amendment. While the Government agree with the need to restore public trust in banking, we should not jump to legislate now but do so once the parliamentary commission has had time to do its work.

Lord Peston: I am still a bit lost. As I understand it, the Minister cannot at this point commit the Government to bringing in any specific Bill that they have not brought in yet. However, setting that on one side, the more important point is that all of my remarks, as he will be aware, were addressed to the whole of the financial services sector. Is it possible to have a banking Bill in which amendments will be put down referring to the code of conduct for the whole financial sector? In my view, we will be told that either the short or long Title will not let us do it. That is why I argue that this is the obvious vehicle for this, and nothing the noble Lord has said so far tells me that this is not the obvious vehicle.

Lord Sassoon: My Lords, we have published the Bill in draft already, so it is already on the slipway in that sense. I am not equipped to get into questions about what precisely the scope could be in that Bill. I believe it is wide enough. If it is not, the Government will find other legislative vehicles in which to introduce this. However, I am reminded that although I loosely call it the banking reform Bill, it will actually be titled the Financial Services (Banking Reform) Bill and therefore the scope will be plenty wide enough to bring in a code of conduct right across the piece. I hope that provides further reassurance to the House.

Baroness Hayter of Kentish Town: My Lords, I thank noble Lords who have spoken on the amendment. I will give one specific answer to my noble friend Lord Peston: there would be a range of penalties possible under an enforceable code, from working under supervision to requalifying or even paying fines
	It is disappointing that the Minister, if I heard him correctly, accepted the problem and-I think-the need for a code but simply said, "Not yet". I do not think that is the right answer. We need to have stronger regulation. I do not agree that the approved persons regulation system worked-if it had, we would not have had all these problems. We need action now. It was not lack of regulation that led to PPI mis-selling, it was the banks' lack of concern for their customers. It was not the absence of regulation that led to the LIBOR manipulation, it was, in the words of the noble Lord, Lord Phillips, a lack of morals.
	Until we have an enforceable code of conduct across the whole of the financial sector to govern internal behaviours, we will not see the difference between the past and the future, to which I believe the noble Lord, Lord Phillips, also referred. I feel certain that the House will support the inclusion of a code of conduct within this Bill. We do not want to wait for a commission that may not have a unanimous report and whose findings the Government have said they will only consider, not endorse. Therefore, I would like to test the opinion of the House.

Division on Amendment 25B
	Contents 184; Not-Contents 187.
	Amendment 25B disagreed.

Amendment 25C
	 Moved by Baroness Hayter of Kentish Town
	25C: Clause 6, page 21, line 8, at end insert-
	"( ) As part of upholding the FCA's consumer protection and integrity objectives, and in order to support a cultural change across the UK financial system, the FCA shall also have a general duty to take into account firms' professional standards.
	( ) This must include-
	(a) an assessment of firms' competencies including the extent to which professional qualifications and continuing professional development are embedded across core functions; and
	(b) an assessment of firms' conduct including adherence to a code of conduct or code of ethics, and the extent to which employees are members of a recognised professional body."

Baroness Hayter of Kentish Town: My Lords, historically, bank managers were much trusted to act in the best interest of their clients, especially when I was a child. Sadly, however, today consumers and small businesses no longer retain that trust. Bank staff have been incentivised to sell complex and sometimes worthless financial products, such as interest rate swaps or PPI. Lloyds alone, for example, has had to set aside £5.3 billion to make good those mis-sellings. We need a banking system which is trusted: a return to old-fashioned stewardship banking which serves every region, business and family in the country. This demands professionalism, which this amendment seeks to embed within the Bill.
	Ministers and regulators have both spoken about the importance of instituting cultural change within firms. The then FSA Chief Executive Hector Sants argued that regulators should,
	"ensure firms have the right culture for their business model-the right ethical framework-to facilitate the right decisions and judgements".
	Earlier this year, in setting out his vision for a "new orthodoxy" in financial services, Martin Wheatley said that he wanted a world,
	"where the culture of firms, from product governance to sales, is aligned with the best interests of the customer".
	These amendments seek to promote such a cultural change by ensuring that FCA supervisors judge professional standards when assessing the conduct risk posed by firms.
	Professional standards are vital. The higher a practitioner's commitment to professional standards, the lower the likelihood of customer harm. Likewise, high levels of professional standards are linked to increased consumer trust and confidence. However, the Bill makes no reference to professional standards, despite the recommendation of the Joint Committee and the evidence of incompetence and even dishonesty. This is a significant omission. Were they written into the Bill, the regulator would have greater persuasive powers and there would be a power incentive for firms to embed higher standards at every level. This would enhance consumer protection and underpin the integrity of the UK financial system. I beg to move.

Lord Phillips of Sudbury: My Lords, I have two amendments in this group, Amendment 26D and Amendment 27A. As I said during debate on the last group of amendments, this part of the Bill is extremely difficult and I make no pretence that what the Government and indeed the parliamentary draftsmen are contending with here is other than the greatest test of their skill.
	None the less, I think that they have got the balance wrong. Noble Lords will know by now that there are three objectives that must be satisfied as far as possible under the Bill: the consumer protection objective, the competition objective, and what is called the integrity objective. My two amendments are designed to buttress the last of those three: the integrity objective. I suggest to your Lordships that of those three objectives, integrity must surely come first. It is frankly no use if the competitive aggression of the City of London remains the highest on the planet, bar perhaps Wall Street, if the standards of integrity are wanting. The same is true of consumer protection.
	However, the Bill gives priority to competition over consumer protection and integrity. I dare say my noble friend the Minister will deny that, but I leave that to your Lordships to judge. Having set out those three objectives, proposed new Section 1B(4) to the FSMA on page 20 then says the following:
	"The FCA must, so far as is compatible with acting in a way which advances the consumer protection objective or the integrity objective, discharge its general functions in a way which promotes effective competition in the interests of consumers".
	That is either a pointless subsection because it has no meaning whatever, or it is a subsection which gives priority to competition. One does not need to labour the point that the tragic and appalling depths to which the City has sunk over recent decades and which it is not yet out of-let us make no bones about it-have their source in simple, ethical failure, and not in a want of competence, aggression of trades, shrewdness or anything else. We as a Parliament really owe it to the country-and, in a strange way, to the City itself-to make it clear that above, before and after all else it is integrity which must be supreme.
	I must confess that I am now sorry that I did not attack proposed new Section 1B(4) head on. With other amendments, however, I have sought to strengthen the arm of the regulators in Amendment 26D, which puts as one of the issues that has to be considered when the regulator construes the integrity objective what I call,
	"the fairness and integrity of policy and conduct of those directing or operating in the financial markets".
	It is a bit strange that there is no reference in this huge Bill to the regulator in relation to the individuals who are conducting business in the financial markets. My second amendment is to the proposed new section that defines the competition objective. It requires, among the matters to which the FCA must have regard,
	"how far the methods or culture of any competition may undermine the integrity objective".
	I have just one more thing to say. The regulators in the City-as I said earlier, I have been there, mainly, not as a City player but within the City and acting occasionally for City entities and individuals-have an almost impossible task. That is because the law on regulation is now so voluminous and complicated, and those against the regulator are so clever, intensive and overwhelming in the resources that they can bring to resisting when it tries to intervene, that we owe it to what we are trying to achieve and, in aid of that, to the regulators to make it clear beyond peradventure that although this new Section 1B(4) will give competition priority between the three factors, none the less these additional subsections would introduce the conduct of the individuals and the concept of fairness into the equation, because they are notably absent in the wording of this Bill.
	I have dealt with some of the regulators over the years and I can only pity them. We need to think what it is like when they are under huge attack and dealing with heaven knows how many cases, all of them complicated and all against businesses which will array against them 10 times the number of professionals that they have to deploy. We really need to make life that bit easier for them so that some cynical and crafty lawyer cannot say, "If you look at that clause and that clause, then that schedule and that schedule, then this Act and that Act and the rest of it, it is not clear. So, old friend, go ahead". We do not want that.

Lord Barnett: The noble Lord makes a good point. He should perhaps have talked to some of his friends on the last group of amendments, when they all voted with the Government. I wonder what they might do this time. Has he convinced them, I wonder? We will have to wait and see. I was surprised by the proposed new section to which he referred because I thought I had understood the "may" or "must" argument. Those words are used profusely throughout the Bill. Indeed, the noble Lord, Lord Sassoon, told us that he had asked officials to go through the whole Bill and work out which of them they should keep. What I had not appreciated-this is a point drawn to our attention by the noble Lord, Lord Phillips-is that on page 20 we have, in new Section 1B(4), another method of having "must" or "may". We have a qualified must:
	"must, so far as is compatible",
	with the later words. In practice, it is not "must" at all. The noble Lord wants to strengthen it, and I agree. We need to strengthen the arm of regulators everywhere. That is why I voted for the previous amendment.
	We may be told that we should wait for the banking Bill, which we have in draft. We cannot be sure that that Bill will appear in that form. I know that at least one noble Lord on the Opposition Benches wants to insert in it something that the Government do not have in mind to insert; namely, a Glass-Steagall amendment. The Minister will know what I mean. I do not know whether he has committed himself or the Government to the draft Bill appearing in the new year. I think he said that we will have it in the new year. Perhaps he will confirm that. We clearly need a banking Bill.
	I understand when the Minister says that the Government will take into careful consideration what the banking commission says, but he has not committed himself on that either. What exactly are the Government committing themselves to? They have set up this very high-powered commission, of which colleagues on all sides of the House are Members, and I understand that they are doing a first-class job, but we have been told only that he may, after serous consideration, introduce what the commission recommends. Will he firm that up this afternoon? Will we definitely have a Bill early in the new year, based to a large extent on the work of this high-powered commission, that will deal with some of the points that have rightly been raised about integrity and care? All these matters could be in a banking Bill as well as in this Bill but, for the moment, we have only this Bill. I support my noble friend Lady Hayter and the noble Lord, Lord Phillips. I will support him when he moves his amendment, and I hope his colleagues on the Liberal Democrat Benches will do the same.

Lord Hodgson of Astley Abbotts: My noble friend Lord Phillips is quite right to draw attention to the importance of integrity. Integrity lies at the heart of confidence in the financial services system, indeed, in any commercial activity. In Amendment 26D, the noble Lord seeks to insert an additional requirement about,
	"the fairness and integrity of policy and conduct of those directing or operating in the financial markets".
	He needs to be aware that the significant influence function committee already checks everybody who is undertaking the sorts of roles that he considers important-which are indeed important-and does so very thoroughly. It has done so with increasing pressure and difficulty in recent years, so much so that people are now ceasing to wish to undertake these roles. They are starting to ask whether they need all the hassle, the problems and the dangers of adverse publicity from people like the noble Lord, Lord Phillips. Powers exist to give authorisation to the people who will set the tone and the philosophy that he seeks to achieve, which all of us who work in the City feel are essential and which, as he rightly pointed out, have not always been present in the past. I say to the House, and to the noble Baroness, Lady Hayter, that we must get the philosophy right. The creation of codes and more regulations will not necessarily produce the right people. We are looking for people with judgment. We rely on judgment, not on process, and as we do this we are in danger of moving more and more to a process-driven system that does not allow the exercise of judgment that will lead to the desirable results that my noble friend indicated in his remarks.

Lord Peston: My Lords, I intervene reluctantly, but I see a lack of logic in what was said by the noble Lord, Lord Hodgson. If the amendment of the noble Lord, Lord Phillips, is not needed, and nor is that of my noble friend Lady Hayter, can he give us any explanation of how the criminal-I use that word again-activities of so many people in the City went on for year after year? If everything is fine and we do not need to establish standards, why did the City not behave appropriately? I use the words "the City" to indicate not just one or two people in the City but a culture right across it. It was the atmosphere there, that is what happened and that is why, in the last-chance saloon of your Lordships' House, my noble friend Lord Phillips and others are trying to do something about it-in order, to put it bluntly, to get the reputation of the City back to where it was decades ago, when most of us were young and could look at it with admiration and pride. We cannot do that now.

Lord Hodgson of Astley Abbotts: I was not aware that I said that everything in the City was perfect. I said that integrity lies at the heart of the financial services industry, as indeed it lies at the heart of most commercial endeavour. I said that there were clearly areas where the City had fallen short, but I pointed out to my noble friend and to the noble Lord, Lord Peston, that the significant influence function committee has very considerable powers that it has been exercising with increasing strength in recent years. Therefore, I doubt that we need amendments such as this.

Lord Phillips of Sudbury: I am a bit confused. If the noble Lord absolutely agrees with me on the primacy of integrity, he cannot have read proposed new Section 1B(4) of FiSMA or he would not be content to oppose these amendments. New Section 1B(4) clearly states that the three objectives are equal but one is more equal than others-namely, competition. If he agrees with me and if one is going to be more equal than others, it should be integrity.

Lord Hodgson of Astley Abbotts: My Lords, I am not on the Front Bench, but as I read it, proposed new Section 1B(4) gives equal weight to these objectives. It states that in,
	"so far as is compatible with acting in a way",
	the three are equal. I agree that integrity is extremely important, but we are not in a position where we want to avoid the other objectives, which have a real place in the creation of a dynamic City that is competitive on the world stage.

Lord Phillips of Sudbury: I hesitate to trouble the House with a further intervention-

Lord Newby: My Lords, perhaps I may remind noble Lords that the rules of the House are that on Report, Members speak once on an amendment.

Lord Peston: We can speak for clarification and to ask questions. We cannot make substantive points.

Lord Sassoon: My Lords, I spoke about the role of the Parliamentary Commission on Banking Standards when discussing the previous group of amendments. I am sorry that the noble Lord, Lord Barnett, doubts the seriousness with which the Government intend to take its recommendations. It is a joint commission of the two Houses-something that any Government would take extremely seriously. We acted to initiate the setting up of the commission so I am disappointed that the noble Lord seeks to tweak my tail on this one. When it comes to a legislative vehicle, I could not have made it plainer that we have already published a draft Bill. The Financial Services (Banking Reform) Bill is on its way. That provides potentially a perfect legislative vehicle if there are things that come out of the commission, as no doubt there will be, that require legislation. The issues raised by Amendments 25C, 25E and 26C are firmly within the remit of the commission and it would be wholly inappropriate for us to jump the gun in a semi-considered way rather than waiting for the magisterial output of the commission in a short time.
	Amendment 26D would add a new paragraph (f) to proposed new Section 1D(2) to be inserted in FiSMA 2000 under this Bill. It refers to,
	"the fairness and integrity of policy and conduct of those directing or operating in the financial markets".
	That is on the same theme but seeks to place specific emphasis on issues of integrity and fairness by making changes to the FCA's objectives. As we have heard from my noble friend Lord Phillips of Sudbury, Amendment 27A would specify that, in considering the effectiveness of competition, the FCA may have regard to the extent to which the,
	"methods or culture of any competition may undermine the integrity objective".
	I sympathise with the amendment to the extent that it is clear that when the FCA considers taking action, it will need to consider all its objectives. Recent events have demonstrated how important it is that the regulator has a mandate to take action to protect and enhance the integrity of the UK financial system.
	The Government have given the FCA the three operational objectives, as we have been reminded, of competition, consumer protection and integrity so that it determines the right balance between them in individual cases. The regulator cannot unduly prioritise any one objective and neglect to consider the others. My noble friend Lord Hodgson of Astley Abbotts has already given another construction, which perhaps is more balanced, of proposed new Section 1B(4) and I am grateful to him for that.
	This is a complex interaction of provisions. In one case we are talking about a competition objective but also, in the context of proposed new Section 1B(4), a duty designed to ensure that the FCA considers competition as a means to, and in the context of, delivering other objectives. But that needs to happen only as far as it is compatible with the integrity and protection objectives. I believe that it is a keenly balanced series of interlocking provisions here, of which these are only two. Of course, there are further elaborations of just what the integrity objective and the other objectives involve. Further, it is important to "have regard to" under this new section. I believe that the balance is right and that there is no need to adjust the structure of the competition objective to require the FCA to consider integrity in the way proposed here.
	Similarly, the FCA's integrity objective will come into play when the FCA is exercising its general functions in relation to conduct. While it must think about whether competition is working in the interests of consumers, I do not believe that it is for the FCA to police the markets to establish and enforce what fairness is. I do not believe that fairness should form part of the explanation of the term "integrity". It is a separate issue.
	There are other issues about the interrelationship between the two new authorities. Proposed new Section 3D requires the PRA and FCA to co-ordinate their functions in areas of common regulatory interest where one may have relevant expertise or wherever one may have a material adverse impact on the objectives of the other. This means that, while it is right that the PRA must focus on its safety and soundness objective, where its actions may impact adversely on consumer protection it will have to listen to the FCA, which has a strong consumer protection objective.
	In summary, I accept the wider point about the importance of these issues. As this short debate has teased out, these issues are very complicated. They are best addressed through the Parliamentary Commission on Banking Standards. In the light of that, I ask the noble Baroness to withdraw her amendment.

Baroness Hayter of Kentish Town: I thank noble Lords for their support on the amendment. I actually think that the Minister is wrong. This is not complicated; this is about integrity. The noble Lord, Lord Hodgson, had it right. We are not talking about how to impose rules. We are talking about something within the people who work in this industry. The problem is that the significant influence function has not worked. Sir Fred Goodwin was appointed under it. It was not working, it has not worked, and we need something different. We need it in the Bill.
	The Minister talked about the report of the Parliamentary Commission on Banking Standards and what is going to come out of that, but that was not set up when the Bill was written. Would the Minister have accepted the code and the amendment on professional standards if Libor had not happened and if a banking commission had not been set up? The Bill was intended to mean no more failures and no more of that behaviour. We are talking about integrity. I had not planned to divide the House on this. However, as the Government have just voted against a code of conduct, I am so tempted now to put it to them that we should vote on professional standards to see whether they really want to say that they have a Financial Services Bill to make changes to the way we regulate but they do not want professional standards in that. For once in my life I will resist temptation. I beg leave to withdraw the amendment.
	Amendment 25C withdrawn.

BBC: Resignation of Director-General
	 — 
	Statement

Viscount Younger of Leckie: My Lords, I wish to repeat an answer to an Urgent Question tabled in the other place from the right honourable Secretary of State for Culture, Media and Sport, which is taken as a Statement in your Lordships' House. The Statement is as follows.
	"The BBC is a global British institution, of huge importance and value to millions of licence fee payers and people all over the world who look to it as an exemplar of independent public service broadcasting. In light of the ongoing crisis, it is crucial that the BBC puts the systems in place to ensure it can continue to make the first-class news and current affairs programmes on which its reputation rests.
	George Entwistle has taken full responsibility for the failings of "Newsnight" in his role as editor in chief and it was for this reason that he decided to resign yesterday. The circumstances of his departure make it hard to justify the level of severance money that has been agreed. Contractual arrangements are a matter for the BBC Trust but the trust also has clear responsibilities to ensure value for money for the licence fee payer. I know that the noble Lord, Lord Patten, has written to the chair of the Culture, Media and Sport Select Committee outlining why the trust took the decision it did and this letter has been made public.
	It is right that the trust should account publicly for that decision. I have repeatedly emphasised the need for full transparency to rebuild public trust. Members will know that there are now in place procedures to scrutinise the BBC's decisions in terms of delivering value for money-procedures strengthened by the Government. The National Audit Office is empowered to conduct a value-for-money review of any issue. If it decides to review this issue then I expect that the BBC would co-operate fully.
	The BBC is in the midst of the most serious of crises. I have made it clear, both publicly and privately, that the trust was slow off the mark in responding to the initial crisis over Savile. It is now acting decisively with three reviews, one of which reported yesterday and the other two ongoing. It is in the long-term interests of the future of the BBC to have a period of stability to see this important work completed.
	In my conversations with the noble Lord, Lord Patten, I have been clear that the overall aim of the trust must be to rebuild the public's trust in the BBC. I know that the noble Lord, Lord Patten, agrees. There are three clear things that the BBC needs to do to achieve that. First, the immediate task for the BBC must be to address whatever failings there have been within the editorial process, particularly in "Newsnight", to restore public confidence in the BBC. The trust needs to act swiftly to ensure that the management and leadership issues are resolved and that these failings can not be repeated. It is clear from the interim director-general's interviews today that the BBC is looking seriously at what went wrong, where responsibility lies and how to address this in the longer term. I welcome this.
	Secondly, the trust must get the right director-general in post. I know that the noble Lord, Lord Patten, has indicated that he will do this as soon as possible, but above all the trust must get the right candidate to stabilise the BBC and drive through the change that is necessary. As I have said before, the BBC is a global British institution and needs to function effectively and in an exemplary fashion.
	Thirdly, we must not lose sight in all this of the inquiries that are at the heart of these events. None of the developments of recent days should overshadow the investigations into the alleged horrendous abuse of children in institutions around the country. It is vital that that the BBC responds correctly and decisively to both Pollard, looking at the decision to drop the "Newsnight" item on Savile, and the Smith inquiry looking at Savile's abuses and the culture and practices of the BBC.
	The BBC is an independent institution and its independence is not and never will be in question. Ultimately, the only organisation that can restore the public's trust in the BBC is itself".
	My Lords, that concludes the Statement.

Baroness Jones of Whitchurch: My Lords, I thank the Minister for repeating the Statement this afternoon.
	This is, indeed, a serious crisis in an institution which is central to British life and whose output remains much loved and respected both here and abroad. It is vital that we in your Lordships' House do all that we can to allow the staff and the trust the time they need to rebuild the institution and set it on a forward path. This is why, as parliamentarians, we should tread carefully in how we respond. Although, no doubt, there will be a range of views about the longer term role of the BBC, its internal structures and its governance, I hope that noble Lords will agree that this is not the moment for political point-scoring and micromanagement of the crisis recovery. I would go as far as to argue that we should work towards a cross-party response to the challenges now being confronted.
	I hope we will also bear in mind that the real story behind this chain of events is a tragedy of sexual abuse of hundreds of victims by a BBC employee and by sexual predators exploiting vulnerable young children at the north Wales care home. It would be unforgivable if, as a result of this mismanagement, victims felt less able to speak out and be taken seriously. We should also acknowledge the understandable distress which has been inflicted upon Lord McAlpine, a former Member of this House, as a result of the poor journalistic standards displayed by "Newsnight" on this occasion.
	We should bear it in mind that this crisis represents a small part of the overall BBC output, estimated to be more than 400,000 hours of TV and radio last year. As we speak, journalists and programme-makers around the country are continuing to deliver a high-quality output of sport, features, light entertainment and award-winning documentaries for which the BBC is rightly famous. The mission to inform, educate and entertain remains at the heart of its identity and purpose. It is vital that its morale and confidence is restored. The problems which the BBC is confronting now are not of the staff's making; it is a fundamental crisis of management.
	While not wanting to prejudge the outcome of the reviews, all the evidence that has appeared so far seems to show an endemic failure of decision-making and leadership. Time and again, there appears to have been a failure to take ownership of editorial issues and a lack of skills to make the important judgment calls. This needs to be addressed urgently, as the leadership reflects upon the lessons of the recent incidents.
	In all the circumstances, it was right that George Entwistle should go; I hear what the Minister has said about the action already being taken on the level of his severance. In the mean time, I hope that he would echo our call for George Entwistle himself to reflect upon whether it is appropriate for him to receive that level of severance and to agree to limit the payment to that which is defined in his contract.
	Secondly, there needs to be an orderly transition towards the appointment of a new director-general. Does the Minister agree that the new appointment should be made firmly in the context of the lessons learnt from this crisis? In particular, can we be sure, in the light of what we now know, that the job description is the same as before? Does the Minister share my concern about the press reports that the chairman intends to reinterview the failed candidates from the last round of appointments? Is there not a case for a rethink and a wider trawl of potential candidates next time around?
	Thirdly, the Secretary of State was quick to take action in the early days of this crisis by writing to the noble Lord, Lord Patten, in what some felt to be inappropriate terms. Can the Minister tell the House what further letters, if any, have been sent by the Secretary of State to the BBC? In the light of the concerns, can he confirm that the details of any contact on this issue between the department and the BBC will be made available? Does he agree that the independence of the BBC is paramount and should not become the next victim of this crisis?
	Fourthly, does the Minister agree that one way in which the BBC has demonstrated its independence in the past was its determination to pursue difficult issues through its investigative journalism? Does he agree that it would be regrettable if one outcome of this crisis was for the BBC to retreat from great, well researched, courageous journalism?
	Finally, will the Minister make it clear that this Government recognise that the BBC is much-loved institution which plays an important role in the culture of this country? Will he and his colleagues commit to standing up for it in the future? Does he agree that the priority now is to support it in recovering the essential qualities of judgment, taste, decency and impartiality, which have been its unique hallmark?

Viscount Younger of Leckie: I thank the noble Baroness, Lady Jones, for her response. I entirely agree with her and appreciate very much the support she has given and the offer of cross-party support in this most difficult of times for the BBC. I entirely agree with her that we must allow for some stability and some calm, both for the trust and for the executive of the BBC, to allow them to see through these very difficult problems. I also agree entirely that we must not forget the precise issue that we are talking about, which is focused on the sexual abuse of vulnerable and young people. These, and the reasons behind them, are the issues which are to be investigated. It is vitally important that we get to the bottom of these, find out what happened and make some decisions accordingly. Clearly, there has been an endemic failure of leadership within the BBC. I have every confidence that my noble friend Lord Patten of Barnes has acted decisively and is making the right decisions to take things forward at this time.
	The noble Baroness asked a number of questions. As for the level of severance pay for Mr Entwistle, it is up to him to decide whether he wishes to-how shall I put it?-give any money back that he will be receiving. It is entirely up to him. I agree with the noble Baroness about the job description of the director-general. It is not up to the Government to say what the job description should be and how it should be outlined. That is a matter for the BBC. There could well be a rethink of the job description and a relook at the current candidates. However, I again emphasise that that is a matter for the BBC to decide. We must allow the noble Lord, Lord Patten, to continue to work through these issues. He acted decisively yesterday to put in place a procedure for finding a new permanent director-general. I confirm that details of letters will be made public as and when they arrive.
	Finally, I concur with the noble Baroness that the BBC is, indeed, a much loved institution. The priority, in a spirit of cross-party support, is to give every support that we can to the BBC at this time.

Baroness Stowell of Beeston: My Lords, before we start with the Back-Bench contributions, I will give the usual reminder that, as this is a Statement, noble Lords have the opportunity to make brief comments and questions only.

Lord King of Bridgwater: My Lords, the Minister is absolutely right to say that this is a matter finally for the BBC to resolve. Certainly, the BBC will survive. That great institution will continue to play an outstanding part in our public life, with the support of all parties in this House. However, Parliament has not served the BBC well in introducing the ludicrous structure of the trust and a separate director-general and his executive board. An all-party Select Committee of this House criticised that proposal at the time. It is now enshrined in a royal charter but it is not impossible to change it. Will the Government give urgent consideration to the mechanics of getting back to a sensible position in which the governors of the BBC are directly involved in issues and the chairman of the BBC has direct responsibility for them, as opposed to this rather remote arm's-length arrangement? The exact problem about which the committee warned has now occurred.

Viscount Younger of Leckie: I take note of what my noble friend said about the structure of the trust and, indeed, of the BBC. However, I believe that now is not the time to review this. As I said earlier, we must have a period of calm and stability to allow the BBC to make the important decisions that it needs to make. The current BBC charter expires on 31 December 2016. As it is a free-standing instrument, changes to the charter cannot be made by Parliament. It is possible to make changes to the charter before that point only with the agreement of the trust itself.

Baroness Williams of Crosby: My Lords, the BBC and the trust have a direct responsibility to explore in great detail how sexual abuse could take place in the BBC's own buildings and under its own culture and aegis. Having said that, let us not forget that the BBC is one of the most outstanding achievements of this country. It is a model to other countries and has a structure that has allowed for balance between different opinions and different views without ever being discouraged from pursuing the truth. It is a great institution and the sooner its management recovers the sense of that, the better for all of us. Having said that, I make one other crucial point. We cannot excuse the BBC Trust completely from the rather unwise judgment it made about the compensation to be paid to a director-general who was in place for two months, or slightly less. For the ordinary citizen in our country that is an extraordinary piece of behaviour and one they cannot begin to understand-and neither can I. I hope that candidates who were unsuccessful in the original competition will, like anybody else of outstanding ability and commitment, be included in the BBC Trust's current selection process for the new director-general. However, as the noble Lord, Lord King, suggested, the BBC Trust needs to look at itself, not just at everybody else.

Viscount Younger of Leckie: I thank my noble friend for her supportive comments about the BBC. Putting aside the awful events that have happened, I wholeheartedly agree that the BBC acts as a role model throughout the world for high-quality journalism and, indeed, high-quality investigative journalism. Your Lordships will know that two inquiries are going on. One is looking into the culture and practices of the BBC, which is more of a long-term investigation. Mr Pollard is looking at editorial matters to find out why the "Newsnight" programme was in the position that it was in. The report will be out at the end of November.
	Mr Entwistle's compensation, to which I alluded earlier and which was mentioned by my noble friend, is a matter for the BBC. I do not wish to go into its precise details.

Lord Pearson of Rannoch: My Lords, the Government rightly say that the only organisation which can restore the public's trust in the BBC is itself, but can the BBC do so under its present chairman and trustees? I ask that because in at least two of the most important areas facing this nation, they are marching determinedly in the opposite direction to the views of a growing majority of the British people. First, an analysis of the trustees reveals that a large majority of them are climate change enthusiasts.

Noble Lords: Oh!

Lord Pearson of Rannoch: Yes, indeed, my Lords, so it is not surprising that the BBC has decided not to allow informed debate on this subject. Secondly, the BBC remains blindly Europhile-I can prove that too-as exemplified by its chairman, who has a large EU pension which he could lose if he went against what the European Commission regards as the interests of the European communities. I need scarcely add that those interests are no longer the interests of this country.

Viscount Younger of Leckie: I do not wish to comment on the European matters mentioned by the noble Lord. As I said, although the trust could have acted more quickly with its initial inquiries, I feel that it is now acting decisively to address this crisis. The noble Lord, Lord Patten, has a key role in ensuring that this crisis is handled well. Again, I support him in everything that he is doing to sort out the mess.

Lord Jay of Ewelme: My Lords, it seems that the BBC has made two quite bad but very different mistakes over this period. It also seems that the BBC has become virtually ungovernable. I understand why the Government and the Opposition do not want to meddle in the BBC's affairs, but to do nothing while the BBC deals with these difficulties seems to me to be quite difficult to justify. I wonder whether the Minister could confirm that he will do all that he can to support the noble Lord, Lord Patten, in the radical overhaul of the governance arrangements of the BBC, of which he spoke, so that once again we can have the confident, world-class, thoroughly professional BBC that has been so important for this country and its reputation both in Britain and abroad.

Viscount Younger of Leckie: I do not know whether it is true to say that the BBC is actually ungovernable. As I said earlier, some very serious problems need to be addressed within the BBC. I absolutely agree with the noble Lord that we should give the noble Lord, Lord Patten, every support that we can to sort out these issues at this very difficult time.

Lord Morris of Aberavon: My Lords, the extent to which the BBC lost the plot is illustrated by its failure in what I hope is an exceptional incident: to put to Lord McAlpine the facts that it was alleging. Why was there such an elementary failure to put these matters to him, contrary to law and natural justice? It is not rocket science.

Viscount Younger of Leckie: The noble and learned Lord makes a passionate point. I agree that what happened concerning the naming of Lord McAlpine was completely abhorrent. There are inquiries into the matter and I do not want to comment any further. We are looking to get to the bottom of that through the BBC. It is a matter for the corporation.

Lord Inglewood: My Lords, although I recognise the ghastliness of the events that we are talking about, does the Minister agree that the independence of the BBC is a central phenomenon that we must retain and that it would be a mistake, particularly as none of us knows the true facts, for those in positions such as ours to shoot from the hip? Will the Minister confirm that when the facts are clear and the steps that should be taken have been taken, the matter will come back to the House so that we can have a full debate on exactly what has occurred?

Viscount Younger of Leckie: I agree that it is very important indeed to uphold the independence of the BBC, but at this stage I cannot confirm whether there will be a debate. I am certain, however, that discussions are taking place to decide if there will be one in the future.

Lord Grocott: While everyone is agreed on the seriousness of the crisis that has engulfed the BBC, it is worth reflecting that it was a BBC programme, "Panorama", which investigated the problems surrounding the Savile issue. One recent aspect of the crisis that has overtaken us is that BBC news bulletins have been leading on this issue hour after hour, day after day. Does the Minister agree that it is difficult to think of any organisation, let alone any news organisation-print or broadcast-which, having acknowledged incredibly serious editorial errors, would be as unremittingly self-critical and as open to public scrutiny?

Viscount Younger of Leckie: The noble Lord makes a very good point. Putting aside the very difficult issues that have arisen over these programmes-which I will not go into-the BBC inquiries will look at all the details and I am sure that in due course we will hear precisely what happened.

Lord Low of Dalston: I certainly associate myself with the important points that the noble Lord, Lord Grocott, made and that the Minister acknowledged. The BBC has obviously sustained a blow to its credibility and to the trust that is widely reposed in it, and I suppose that this may be described as a crisis. However, I hope that the Minister would agree-and I take it from what he said that he would-that these things must be kept in proportion and that it would be absurd to suggest that a feeding frenzy over particular incidents, however serious, constitutes a global threat to the BBC's brand, which remains strong overall and rightly continues to command widespread trust and respect.

Viscount Younger of Leckie: I agree very much with the comments of the noble Lord; we must keep the issues in proportion. He is completely correct. I was alarmed by the feeding frenzy that came out of the press, particularly some of the headlines regarding the resignation of Mr Entwistle. I believe this should be a period of calm; there is a need for stability to allow the BBC to work through these very difficult problems. I appreciate the comments made by the noble Lord.

The Lord Bishop of Ripon and Leeds: My Lords, I am very grateful that in the initial Statement the Minister said that we must continue to recognise the needs of those who have been abused. He spoke of the BBC facing a series of crises. Those who were abused face a far more serious series of crises. Will he stress again that the primary concern at this point needs to be the protection of children and young people? Will he also stress the continuing desire of us all to encourage those who have suffered abuse to come forward so we can change the culture of how we deal with such issues?

Viscount Younger of Leckie: The right reverend Prelate makes a very important point, with which I concur. I encourage all people who have suffered this horrendous abuse to come forward, as a large number already have. I also agree with him that our thoughts today should be with these people who have suffered so badly. His point is well made.

Lord Campbell-Savours: My Lords, will the Minister confirm that heads have rolled at the BBC as a result of a story written not by a BBC journalist but by a freelancer-a Mr Angus Stickler? He sold his story to a "Newsnight" team which was reeling from the consequences of the fallout of the Savile business. The "Newsnight" team was in chaos as a result of that. I am not trying to excuse what happened but let us be absolutely clear: it was not a "Newsnight" employee. It was someone from outside of the organisation who, I hope, will no longer be providing information or stories to the BBC in the future.

Viscount Younger of Leckie: The noble Lord makes an interesting point. It is still the case, however, that the BBC remains responsible, despite the fact that, allegedly, there was a freelance journalist involved. Again, these issues will be looked at as part of the ongoing inquiries.

Baroness Jay of Paddington: My Lords, perhaps I may echo or follow the comments of my noble friend Lord Grocott and the noble Lord, Lord Low. One of the things that I was always taught when I worked as a BBC journalist many years ago-and I declare that interest-was the priority of balance, and balance in this matter is absolutely essential. I would ask the Minister to observe that, at the same time as this whole firestorm about the various "Newsnight" problems, which are indeed reprehensible, was occurring, the BBC was once again demonstrating its enormous global power in its coverage of the American presidential election and of the events in Beijing while at the same time maintaining its very close watch-as the noble Lord, Lord Grocott, said-on the problems at home which it itself had partly created. I think that we should observe very strongly the question of balance, particularly when we take note, or do not take note, of the comments of some sections of the press.

Viscount Younger of Leckie: I agree with the noble Baroness's comments. I consistently have said that we need a period of calm and stability, and the question of balance crops up as part of that. We need to take a balanced look at the issues, and there needs to be balance generally in looking at these very difficult issues.

Lord Roberts of Conwy: My Lords, my noble friend may wish to know that Mr Iain Overton, the editor of the Bureau of Investigative Journalism which produced the offending piece of shoddy journalism for "Newsnight", has resigned today. Will my noble friend make certain that we and the BBC are fully informed as to how the organisation headed by Mr Overton secured such a trustworthy position with "Newsnight" so that its work on the north Wales child inquiry was not properly investigated and checked?

Viscount Younger of Leckie: I thank my noble friend for that information. I was alerted to it just before I came into the Chamber. However, I do not have any further details and I would not wish to comment further about the name mentioned. However, I imagine that this issue and the name mentioned will be taken up as part of the inquiry into these issues.

Lord Stoddart of Swindon: Does the noble Lord agree that the selection pool for the BBC Trust is very narrow? Would it not be as well that that pool should be widened so that a perhaps more critical attitude could be taken of the operations of the BBC? Perhaps one of the new candidates could be the noble Lord, Lord Pearson of Rannoch.

Viscount Younger of Leckie: I would not wish to comment on any particular candidate. I presume that the noble Lord was referring to the search process that the chairman of the trust has said that he would carry out. I am not able to comment on that particular process at the moment. That is a matter, indeed, for the BBC.

Lord Harris of Haringey: My Lords, the right reverend Prelate has rightly reminded the House that the people we should be most concerned about in all of this are those who were the victims of abuse. Can the Minister comment on whether the Government feel that the frenzy around the existential crisis of the BBC is not really a distraction from concerns that there was very real abuse in children's homes in north Wales and elsewhere; that there was an individual who, because of his celebrity, was able to abuse children all over the country; and that we are in danger of being deflected, which of course plays into the hands of those who would rather cover up what happened and the names of those who were ultimately responsible?

Viscount Younger of Leckie: The noble Lord makes a very important point-that we must not lose sight of the awful events that have taken place and of why the BBC is in the position it is in at the moment. However, given a bit of calm and stability the immediate issues will, one hopes, blow over, and those who are now taking the right decisions will make those decisions and follow them through. I am sure that there will be a number of days of continued press reports but I absolutely take the noble Lord's point that we must not forget the real issue behind these terrible reports.

Financial Services Bill
	 — 
	Report (2nd Day) (Continued)

Clause 6 : The new Regulators
	Amendment 25D
	 Moved by Baroness Hayter of Kentish Town
	25D: Clause 6, page 21, line 13, at end insert-
	"( ) the general principle that, where consumers properly repose trust in a firm's discretion and are vulnerable to the exercise of that discretion, the firm has a duty to act in the consumer's best interests"

Baroness Hayter of Kentish Town: My Lords, financial services is perhaps less problematic than broadcasting at the moment. I rise to move Amendment 25D, which stands in my name and that of my noble friend Lord Eatwell. This is perhaps the key amendment in all the ones that we will discuss today. We will simply not get this industry back on track and working in the interests of its savers and borrowers until firms put clients' interests above their own bonus levels, remuneration or promotion prospects. Rather as doctors take care-above all else-of their patients, so must the banks, the insurance companies, those who lend us money and those who care for our savings put our interests centre stage.
	These amendments seek to ensure that where consumers put trust in a firm's discretion, and are vulnerable to the exercise of that discretion, the firm must act in their best interests. Trust is key to this industry. As John Kay wrote in his July review for the Government:
	"Financial intermediation depends on trust and confidence: the trust and confidence that savers who invest funds have in those they choose to manage these funds".
	This goes to the heart of the behaviours, ethics and very thought patterns of this vital industry. Surely, as we have heard already today, we have enough evidence from LIBOR, precipice bonds, mortgage mis-selling and interest rate swaps that cultural change is needed in this industry. The costs of the PPI scandal, which has already been referred to, are now being picked up by those very offending banks. I believe that this amendment is in their interests. If they were stopped from doing these things beforehand, they would not then have to put things right afterwards.
	The PPI scandal has sometimes been blamed on the lack of early intervention by the FSA, on the insufficiently rapid transmission of intelligence from the Financial Ombudsman, or on absolutely anything or anyone other than the mis-selling banks themselves. Had those banks had a duty of care towards clients, or been required to consider their best interests, there is no way that they could have continued to sell those products once they realised how few of their purchases would actually be covered by them.
	Surely it is strange that where a saver puts their money into a trust-based pension scheme it is governed by trustees who have fiduciary duties to act in the best interests of beneficiaries, but that if that same saver puts their money in a contract-based pension scheme or similar scheme run by commercial providers, the FSA's rules governing such contracts impose no duty on providers to put beneficiaries' interests first. That cannot be right. It is not what savers expect of their provider.
	The amendments would ensure, in an enforceable way, that authorised persons act in the best interests of their clients. As I argued in Committee, the Bill expects consumers to,
	"take responsibility for their decisions"-[Official Report, 11/6/12; col. 1255]-
	but without placing a corresponding requirement on firms to act in the best interests of their clients. This lacks balance. As the Kay review says:
	"Stewardship is incompatible with conflict of interest".
	Kay calls for all those involved in the equity investment chain to observe fiduciary standards in their relationships with clients. Thus financial services should owe their customers the same duty of care as a lawyer or other professional by acting honestly, fairly and professionally in the best interests of their customers and in managing conflicts of interest. It is no good relying on rules to ensure this. Such requirements on firms have been in the FSA's principles for business, yet consumers have still been shabbily treated.
	We want there to be a duty of care in the Bill to ensure proper oversight and to emphasise its importance both to the regulators and the regulated. Such a duty of care will ensure that financial services can no longer profit unfairly at the expense of their customers. It is not enough-in case the Minister is going to say it-to leave this simply to the banking commission. It should be central to the Bill.
	The Kay review calls for the application of fiduciary standards of care by all those who manage or advise on the investments of others. That is what we seek in these amendments and what I hope this House will now support. I beg to move.

Lord Stoneham of Droxford: My Lords, I support the amendment. The issue behind the amendments in this group is that the investment industry's duties to savers appear to be poorly understood and observed. As the Law Commission has confirmed, where firms are managing other people's money or giving them financial advice, they have strict fiduciary duties to act in those people's interests. This includes both individual clients and institutions such as pension funds which represent large numbers of underlying savers.
	Fiduciary duties are stricter than FSA rules, yet they are not universally accepted within the industry. There is anecdotal evidence that firms often seek to exclude or restrict their liability for breach of fiduciary duties through contractual terms which may not be read or understood by the lay trustees of pension funds. Even where they are accepted, it is very clear that they are not being applied. In the past week, the FSA has published a "Dear CEO" letter on conflicts of interests among asset managers which found that,
	"many firms had failed to establish an adequate framework for identifying and managing conflicts of interests",
	and that,
	"in most cases senior management failed to show us they understood and communicated this sense of duty to customers".
	In other words, firms are often not meeting even the FSA's standards regarding conflicts of interest, which are lower than fiduciary standards.
	As these are common law duties, they do not form part of the FSA's regulatory approach. Indeed, there is confusion over whether it is appropriate for the FSA to enforce them, with some arguing that it is for beneficiaries to pursue court actions if duties are breached.
	Where pension savings are concerned, this is unrealistic and unsatisfactory as a means of achieving high standards of care across the market. An explicit, best-interests principle in a Financial Services Bill would give the FCA a powerful tool to ensure that consumers' interests were protected.
	The concern is that the Bill's new wording is significantly weaker than that proposed by the Joint Committee and may not provide a high enough level of protection for consumers. It lacks clarity in what might constitute an appropriate level of care, thereby leaving open the very question it was intended to resolve. Where those managing people's long-term savings are concerned, the problem is precisely that there is confusion and misinformation about what is the appropriate level of care. Explicit confirmation that those managing other people's money must act in their best interests would be a clear and effective way to help achieve the Joint Committee's intention. Amendment 25D would provide that confirmation, since anyone managing somebody else's money would meet the criteria of discretion and consumer vulnerability.
	The noble Baroness, Lady Hayter, drew attention to the fact that this issue has the potential to seriously undermine the aims of auto-enrolment. In trust-based pension schemes, it is clear that the trustees are there to act in beneficiaries' best interests. Indeed, as the ABI pointed out in oral evidence to the Joint Committee, one positive feature of the National Employment Savings Trust-NEST-is that it has a trustee structure that looks to protect its members. However, many savers are likely to be auto-enrolled into contract-based pension products where, as things currently stand, no such protection exists. Since the House of Lords considered the Bill in Committee, we have had the Kay review of UK equity markets. It recommended that:
	"Regulatory authorities ... should apply fiduciary standards to all relationships in the investment chain which involve discretion over the investments of others, or advice on investment decisions. These obligations should be independent of the classification of the client, and should not be capable of being contractually overridden".
	This amendment seeks to address a number of objections to similar amendments raised in the Commons and in the Lords in Committee. First, it does not rely on the term "fiduciary duty" but rather seeks to enshrine the common sense principle that underpins these duties-that where consumers rely on a firm's discretion, that discretion must be exercised in the consumers' best interests. Secondly, it would not supersede or restrict the specific standards to be laid down in FCA rules but rather would provide an overarching principle that the FCA should bear in mind when setting those rules. Thirdly, it would not apply across the board but only where appropriate-that is, where consumers have a particular relationship with providers that justifies a best-interest standard.
	When we looked at a similar amendment to Amendment 25D in Committee, my noble friend Lord Sassoon expressed sympathy with the intent but argued that it was a matter for the FCA to make detailed rules on, rather than to be included in the Bill. However, as I have already said, part of the problem is that the common law status of fiduciary duties makes it unclear whether it falls within the FCA's remit to uphold them, hence the need for an explicit reference in the Bill. It has also been suggested that refusal to amend the Bill in this way indicates a lack of political support for robust action to challenge the interests of financial intermediaries. Indeed, this could make the FCA feel that it has limited room for manoeuvre. Therefore, I hope that my noble friend will be more prepared to consider accepting the amendment and, at the very least, that he will give some indication of the support that the Government will give to the full implementation of the Kay recommendations.

Lord Peston: My Lords, in supporting my noble friend's amendment I reread this section of the Bill, and I realised that I did not understand it at all. On the face of it, we are discussing here the consumer protection objective-that is, a series of statements most of which could be read as totally vacuous. In fact, as I read them again, I immediately thought, "What does it leave the FCA to do, rather than simply tell them?". There are remarks like:
	"the general principle that consumers should take responsibility for their decisions".
	If that is a general principle, why do any of the other principles hold?
	There is,
	"the needs that consumers may have for the timely provision of information and advice that is accurate",
	and so on. Anyone who knows anything about systemic risk knows that the relevant amount of information is massive and that few people on this planet would be capable of processing it in order to come to a view.
	My noble friend's amendment at least seems to have some impact on the FCA possibly doing something. Reading the Bill, I have great difficulty seeing what the FCA then does. Perhaps the Minister can tell us.
	Let us take the simple case where a particular part of the financial services industry is managing a fund for a consumer. How does the consumer know whether their funds are being managed properly? What is the process whereby the consumer would ever get to the stage of thinking, "Something has gone wrong here"? I can find nothing in the Bill that tells me that the FCA will play an active role. Will it be rather like the Press Complaints Commission where, if no one complains, we end up with the ghastly press that we have and no one does anything about it?
	I should have raised this earlier, but it did not dawn on me until I read the Bill again apropos of my noble friend's amendment, how peculiar this whole new section is. There may be another new section that states, using my noble friend's favourite word and mine, that the FCA "must", when it examines any questions under this heading, act to change things. I cannot find anything in the Bill that says that, but the Minister knows the Bill better than I do, so he may well point to that. One outstanding thing about my noble friend's amendment is that, compared with most of what is already in this new section, it is substantive and not vacuous.
	Another example is that,
	"the FCA must have regard to ... the differing degrees of risk involved in different kinds of investment or other transaction".
	If you wanted a vacuous statement that more or less takes the biscuit. In fact, I am trying very hard to find any sentence that is not vacuous. When the noble Lord replies to my noble friend-with any luck, he might even accept my noble friend's amendment-he might explain the point of the whole of the rest of this new section. It would get about a C- in any economic first-year exam on what should be the objectives of consumer protection.

Lord Sassoon: My Lords, this is another group of amendments where we have not only debated the issues at length at previous stages but when we have seen broad agreement across the House on the driving principle behind them. The notion behind the amendments is both clear and unarguable. Firms have and should have responsibilities to their customers. I agree that consumers have, all too often, suffered detriment at the hand of financial services firms because the regulator's overly broad remit meant that such important matters were not given sufficient attention. The main answer to the challenge of the noble Lord, Lord Peston, is that it is for that very reason that we are creating a focused conduct of business regulator with a new suite of powers to tackle firms that do not take their considerable responsibilities in this area seriously.

Lord Peston: Is the Minister telling your Lordships that the FCA will have the power to intervene with specific firms? On the basis of what information, I wonder.

Lord Sassoon: Yes, I can confirm that. The information may come from a whole range of sources. Obviously, consumer complaints could be one source, but I know that the noble Lord postulated a circumstance in which there was no consumer complaint. It will clearly be going in regularly to review how a firm operates and conducts its business. That will be another source of information. I am sure that it will regularly compare products on offer, one against another, and if there are outlying products, that is another source of information. There is a whole range of sources of information. The key thing here is that we have in the FCA a regulator that does not have to be concerned, as the FSA does, with all the considerations of prudential regulation and supervision and can therefore take a much clearer approach. As we discussed, there are specific product intervention powers, which the FSA does not have.
	The noble Lord helpfully raises the general background. We are putting the FCA in a much better position to tackle those issues proactively. Specifically, Amendment 25D would insert a factor that the FCA would have to consider when advancing its consumer protection objective. Namely, it would require the FCA to have regard to,
	"the general principle that, where consumers properly repose trust in a firm's discretion and are vulnerable to the exercise of that discretion, the firm has a duty to act in the consumer's best interests".
	As I reflected in Committee, this is a cleverly worded amendment and the motivation behind it is noble, but I am still not convinced that it would result in firms acting in the way that the amendment is intended to ensure.
	I am clear that the best way for the regulator to ensure that firms act in the best interests of their customers is through detailed, clear and unambiguous rules. Noble Lords have already highlighted the FSA's "treating customers fairly" principle, under which it has carried out important work to protect consumers. With the renewed focus on consumer protection which I have just highlighted, the FCA will be empowered to go further. The precision attached to rules offers a much more effective shield for consumers than a broad duty, which will be near-impossible for the FCA-or, indeed, firms or consumers-to interpret, given the breadth of interests of different consumers at different times.
	Moving to Amendment 26B, we return to the thorny question of fiduciary duty. Amendment 26B is drafted to reflect the recommendations of the Kay review in this area. The Government are in the process of responding formally to the recommendations of the review, and I hope that the House will concede that it would be inappropriate for me to pre-empt that response. I assure my noble friend Lord Stoneham of Droxford that we are taking the Kay review recommendations very seriously and that they will receive a substantive response.
	I reassure the noble Baroness, Lady Hayter of Kentish Town, that the regulatory framework that we are establishing will enable the FCA to consider to what extent current regulatory rules in this area support these standards, if they advance its objectives. However, I am concerned that there are aspects of this amendment which would not have the effect that we desire. In particular, the proposal that the regulator gives guidance as to what is the effect of common law, notwithstanding what we have heard, seems very dangerous to me. It risks absolving firms of the duty to consider their role and duty under common law and places the burden on the regulator to outline how the common law applies. Seeking to codify common law in guidance in this way also means that the scope for the common law to develop and adapt to reflect changing circumstances-which is, of course, one of the great virtues of the common law-may be impeded. As a general point of principle, this amendment is unnecessary, because the FCA is empowered to issue such guidance as it sees fit.
	The last amendment in this group, Amendment 45A, is another that we have seen before. It would require the FCA and PRA to have regard to,
	"the principle that authorised persons should act honestly, fairly and professionally in the best interests of consumers who are their clients".
	Of course firms should act in this way. The right way to ensure that is to empower the FCA, when firms do not act in that way, to act under its consumer protection objective, with strong mechanisms in place to ensure that it co-ordinates effectively with the PRA when it does.
	I agree that we want financial services firms to act in a way that puts customers first. It is precisely for this reason that we are creating the FCA as a focused conduct and business regulator. I maintain that the regulatory framework that we are putting in place will lead to better outcomes for consumers, with a focused regulator empowered to act and armed with substantial new powers to ensure that it does. On this understanding, I ask the noble Baroness to withdraw her amendment.

Baroness Hayter of Kentish Town: My Lords, I thank the noble Lord, Lord Stoneham of Droxford, and my noble friend Lord Peston for their support. When my noble friend Lord Peston spoke of vacuous statements, it slightly reminded me of the Simon Hoggart test of everything: if one says the opposite of a statement and it is absolutely meaningless, then maybe the statement was not worth saying anyway. If one says the opposite of "firms should act in their clients' best interests"-that is, "firms should act in their clients' worst interests"-it shows that this is an important statement and is worth considering.
	The uncertain and rather confusing reply from the Minister is not the one he should have given. His reply is not good for the industry, it is certainly not good for consumers, and it is not good for UK plc, which needs this industry to be thriving and therefore trusted. He is not right in saying that detailed rules are the answer; they did not work before. Treating customers fairly-that phrase that some of us know very well-is not the answer either, because it did not work before. A broad duty is needed.
	In these amendments we ask for what we believe to be the common law position, and what the Kay report recommended. Why the Government could not have responded to that report by today so that we could have known whether this could be in the Bill I do not know; they have had it since July-I had a holiday, I do not know if the Government did. In these amendments we ask for what every other profession has to offer its clients or patients. It is what consumers, whether savers or borrowers, expect from their providers-that authorised persons, managing other people's business, have a duty to act in their clients' best interests. This means avoiding conflicts of interest, acting in good faith, not profiting unreasonably at the expense of customers without their knowledge and consent, and a duty of confidentiality. It is not that painful. This needs to be in the Bill: first, to make sure it happens; and secondly, to empower the FCA. I feel sure that noble Lords will support this move, and I therefore wish to test the opinion of the House.

Division on Amendment 25D
	Contents 186; Not-Contents 206.
	Amendment 25D disagreed.

Amendment 25E not moved.
	Amendment 25F
	 Moved by Lord Blackwell
	25F: Clause 6, page 21, line 19, at end insert-
	"( ) the need to balance protection for consumers against the desirability of consumers having affordable access to appropriate products with appropriate information or advice or both"

Lord Blackwell: My Lords, in moving Amendment 25F I should ask the House to take note of my interests as set out in the register. The purpose of this amendment is to make it explicit that the FCA is able and, indeed, required to balance the absolute objective of consumer protection against the desirability of ensuring that the costs and risks of regulation do not result in customer detriment by discouraging providers from serving customers with products from which they can benefit.
	The context of this amendment is the retail distribution review, which is coming into force shortly and to which my noble friend Lord Flight referred earlier. In my view, this quite properly moves the industry from selling investment products through often hidden commissions and ensures that independent advice is truly independent, high quality and paid for through a transparent fee. While my noble friend Lord Flight raised a number of practical issues, I am supportive of the aims of the RDR. Clearly, industry practices in the past led to some customers being sold inappropriate products and paying high commission charges without being clear about the size of those charges, how they were levied or how they might influence the advice they were receiving. The new regime should, on the whole, lead to those who want advice being clear what they are getting and what they are paying.
	However, one consequence of higher standards is that those with relatively modest amounts to invest, or with relatively modest pension pots to turn into retirement income, may find that the cost of advice is prohibitive. By modest I am talking about people with tens of thousands of pounds, at and above the population average, not just those on low incomes or from disadvantaged communities. We are talking about a large part of the population finding the cost of advice prohibitive. Yet such people, while they have the need to invest, are less likely to be financially sophisticated and need the most help and guidance-particularly as they approach retirement.
	It is important that the industry is therefore able to do its best to support those customers by providing information and guidance that helps individuals to understand their options, weigh up the risks and, where they do not want to take or cannot afford personal advice, come to their own decisions about which investment is best for them. We are talking here not about exotic investment products but simply, for example, about whether to stick to a cash ISA or purchase one with potentially higher long-term returns, or a decision about what kind of annuity to purchase-a decision that an increasing number of ordinary citizens will face over the coming years as direct benefit plans decline and more direct contribution pension plans mature. It is clearly up to the industry to provide the best information and guidance it can to help these customers, but, inevitably, without personalised advice and the full fact find and high costs that go with it, there will be some customers who make the wrong decisions.
	The aim of this amendment is to make it clear that the FCA can and should balance the objective of protecting consumers in these circumstances against the risk that placing too high a bar for consumer protection will discourage providers from seeking to serve this market, for fear of the compliance risk that they take on. Of course we should want high standards of protection for everyone against deliberate mis-selling or plain negligence, and there may well be many customers who are better off doing nothing than being encouraged into inappropriate products, but there needs to be a balance to enable those providers who seek to act responsibly in providing information and guidance to do so with some confidence that the compliance risks are acceptable.
	As the Bill stands, the absolute objective of appropriate consumer protection is guided only by the considerations in new Section 1C on page 21, none of which, I contend, adequately recognises the need for the balance I have described. The general principle in paragraph (d) that,
	"consumers should take responsibility for their decisions",
	is helpful, but I do not believe resolves the issue. Indeed, given the other statements in the Bill, I am not sure how the FCA is supposed to interpret this paragraph. I believe it would help the FCA and the industry and benefit consumers if the need for balance in defining the appropriate level of consumer protection were explicitly recognised in the Bill. I hope the Minister will agree with that.
	Before I sit down, I shall comment briefly on the other, government, amendment in this group. It deals with the related but different issue of how the competition objective may affect, and potentially support, access by disadvantaged groups to financial services and, in particular, the availability of basic financial services in areas of economic and social deprivation. These are important issues, but I hope the Minister will recognise that I am drawing attention to much wider issue affecting a much higher proportion of the population that requires a different response. I beg to move.

Baroness Noakes: I added my name to this amendment because my noble friend has raised some important issues, and I support everything he said. When approaching consumer protection, it is often easy to want to insure or underpin the consumer in every possible way, but we have to have a market in which financial service providers can be confident that when they provide a financial product, whether it is a mortgage, an ISA or an insurance or pension product, they know the risks they are undertaking in relation to that. Understanding the balance that will be taken by the FCA when approaching its consumer protection objective is extremely important to the financial services industry. If the financial service industry gets very unconfident about how this will play out in practice, we will end up with a worse outcome for consumers because it is almost certain that the range of products and the degree of financial innovation that will be invested in would decline. It will not happen immediately, but it will decline over time because firms will not be confident about how they can approach them.
	The financial service industry reads very carefully what the people involved in regulation say about these things. The FSA recently put out a document dealing with the direction for the new FCA. It was very useful to be updated how those in the part of the FSA which is migrating to the FCA developed their thinking. In the introduction to that document, Mr Martin Wheatley, who will be the chief executive of the FCA, said:
	"We expect a mortgage that is affordable".
	That sounds like an uncontroversial statement, until you think that that might mean that a variable rate mortgage could never be provided to a consumer if it were at all possible that plausible fluctuations in the interest rate could end up with some kind of consumer detriment. We might end up closing off certain products that would benefit consumers because the firm cannot be confident that the standard by which it would be judged will allow it to provide those products safely. The issues raised by my noble friend are extremely important, and I look forward to hearing what the Minister has to say.

Lord Deben: My Lords, I refer again to my declaration of interests. I understand the reason for this amendment, but it seems not the right way to achieve its end. To suggest that you have to balance protection on the one hand with access on the other seems a misunderstanding of what protection ought to be. I am sorry that the Government have so far been unwilling to place upon the regulator a responsibility to have regard to the extent to which advice is available. That ought to be part of what the regulator does when he thinks about how he is going to regulate and the demands that he is going to make. There is a real argument that we are going to find that there will be fewer opportunities for those of modest means to get proper advice. It is important for the regulator to take that into account when he lays burdens upon the industry. I think that is right, but I am sure that this is not the way to achieve that end, partly because it does not help the industry to suggest that somehow or other protection for consumers is necessarily contrary to the need to provide for a wider range of people to have advice. The failure to get this right has been one of the problems with the industry in the past.
	I hope that the Minister will resist this amendment, but that he will do so recognising that there is a real concern behind it, which is that the cost of regulation and the degree to which regulation is disproportionate falls most on those who most need advice and very often are not in receipt of a great income and do not have large reserves. I hope that the Minister will accept that there is a concern here. It is one that the Government have failed properly to address, and it is not well addressed by suggesting that there is a kind of conflict where conflict does not necessarily occur.

Lord Hodgson of Astley Abbotts: My Lords, my name is on this amendment, and I briefly rise to support my noble friend. The key phrase in his remarks was "responsible behaviour by providers" and the key phrase in the comments by my noble friend Lady Noakes was "nervousness among providers". This comes about because this is an industry where there is huge opportunity for ex post judgments. What appears extremely fair and reasonable at one point can, with the effluxion of time, without any malfeasance on either side, come to be seen as having been perhaps not a very suitable way to provide information, products or whatever. We have to be very careful that we do not shut off opportunities for the moderately wealthy or the less than moderately wealthy to get access to proper advice. In doing this, we will need to address the sorts of issues raised by my noble friend.
	It is now made worse by the activities of claims management companies that jump on the bandwagon. It is instructive that each firm that is complained against is charged £850 by the Financial Ombudsman Service, irrespective of whether the claim is found to be genuine. This is not a completely free exercise because it will end up on the shoulders of the consumers, or customers, because of the circularity of the way that these firms have to operate. The combination of products with a very long life, a volatile financial services system and a predatory claims management system will lead, unless the regulator has the proper balance in his requirements, to withdrawal of advice, products and services to a large number of our fellow citizens.

Lord Flight: My Lords, I have leant my name also to this amendment. I am seriously concerned at a contrarian impact from quite a lot of what is in this Bill. There will be less and less product and advice for ordinary people. I have already made the point with regard to RDR. The FSA itself has decided that VCTs and EIS are not suitable unless people are sophisticated investors. In the end, mostly ordinary folk will just be left with cash deposits for their savings. Anyone who has studied economics must expect that at some stage in the not-too-distant future there will be a period of very high inflation as a result of QE so people will be severely damaged if they hold all their investments in cash long term. I am not sure whether the balanced approach is correct, but if you want providers to continue to provide other than to the more sophisticated part of the population, if you make the risks and penalties in so doing sufficiently high, the commonsense commercial judgment is to say that we are not interested in being in that part of the market. It is important and makes sense to think of a balance between the two.

Baroness Turner of Camden: My Lords, I am a bit concerned about the wording of Amendment 27 with which this amendment is grouped. It refers to,
	"the ease with which consumers ... may wish to use ... services, including consumers in areas affected by social or economic deprivation, can access them".
	I am very concerned, as many of us are, with people who are perhaps in a rather vulnerable situation being persuaded into services that are really not appropriate for them. This wording here at least lays that open so it would be possible for consumers who are affected by social or economic deprivation to be persuaded into services which are certainly not available or should not be available for them because they are not really suitable. This particular wording gives that impression and I am not very happy about it.

Lord Newby: My Lords, the question of access to financial services is obviously one that the House has considered very carefully as we have been going through the Bill. We all agree that it is very important that consumers, irrespective of where they live, their income levels, or any other characteristics, should have access to the financial services they need. However, while we have agreed on the principle, we have found it less easy to reach the same consensus on what should happen if the needs of people for access to financial services are not being met.
	In debate in Committee, my noble friends Lord Sharkey and Lady Kramer in particular spoke eloquently about the problems caused by a lack of access to basic financial services in deprived communities and by a lack of lending and funding for SMEs in those same communities-a state of affairs that can further inhibit growth. The noble Baroness, Lady Hayter, offered her support in speaking up for the importance of ensuring access to financial services for everyone. I know this is a subject also very close to the heart of the right reverend Prelate the Bishop of Durham and I am delighted to be able to be the first Member of your Lordships' House to congratulate him from the Dispatch Box on his new appointment.

Noble Lords: Hear, hear.

Lord Newby: I will reiterate that I agree with these important points. Access to financial services is crucial. However, the Government have had concerns about the role assigned to the Government as opposed to the regulator in addressing these issues. We have made the point on several occasions that while the Government believe that the regulator has a role in promoting access and helping the most vulnerable, this should extend only as far as the FCA making sure that markets deliver, and that supply and demand meet people's needs. Where effective competition cannot deliver, the Government, not the regulator, should step in.
	To put beyond doubt that we want the regulator to play a role in promoting access where markets already exist, the Government have tabled Amendment 27 that would add a new "have regard" to the FCA's competition objective. The Bill already states that in considering whether there is effective competition, the FCA may have regard to,
	"the needs of different consumers who use or may wish to use financial services".
	The new "have regard" inserted by Amendment 27 complements this by setting out that the FCA may have regard to,
	"the ease with which consumers, including those in areas affected by social or economic deprivation, can access the services they may wish to use".
	What do we think the FCA will do to put into effect this "have regard" in practice? In support of the new amendment, the FCA will need to undertake, where appropriate, an assessment of whether consumers have access to products and services that meet their needs. In order to do this, it will necessarily gather data from industry on existing provision and work with relevant organisations to understand what problems with access actual and potential consumers are facing. We will return to the question of data later this evening but I wanted to put beyond doubt that the FCA will collect data relating to access. It is in its interest to do so, and as the FCA's CEO-designate, Martin Wheatley, said just this morning:
	"The banks have to make a commercial decision as to when they loan and when they don't loan, but getting information out there is an important part of getting society able to judge those banks".
	Where the FCA has identified a problem with access, the regulator will consider whether it could take action that could close gaps in provision by promoting competition in the interests of consumers. It may also consider whether in fact its own rules and requirements are posing a burden on competition and restricting access.
	Picking up the concern of the noble Baroness, Lady Turner, the Government's main concern here is that in deprived communities there is a real lack of access to products. There is a lack of access very often to basic bank accounts, ATMs and the possibility of loans to SMEs. We equally recognise, however, that inappropriate products are sold and we have discussed at considerable length some of the difficulties with payday loans, for example. The key legislative safeguard, which I hope will reassure the noble Baroness, is that the FCA can only close gaps in provision by promoting competition where it is in the interests of consumers. It is going to have to place a lot of weight on making sure, as a general rule, that the interests of consumers are at the forefront of what it does. If it does that effectively it will reduce the scope for inappropriate products being sold.
	The other amendment in this group, Amendment 25F, deals with the balance between protection and access. It follows on from the debate we had earlier today about some of the impacts of the RDR and the concern that people have that the RDR will create an advice gap and that the bar will be set too high, as the noble Lord, Lord Blackwell, put it, in terms of consumers of more modest means getting appropriate advice. The purpose of the RDR, as we have debated, is to instil more trust and confidence in the retail investment market. It is intended to lead to more engagement by consumers and to provide an opportunity for advisers to demonstrate how they add value and meet the demand for good quality financial advice, potentially to grow their business as they do so.
	I accept that this may mean that a band of consumers who might previously have used an IFA might now have concerns about whether they can afford to use the new advice services. However, we believe that, in some cases, it may not make economic sense for consumers to purchase investment advice. Instead, these consumers may benefit more from generic financial advice. Free financial advice and information is available from a number of sources. For example, the Government set up the Money Advice Service to provide free generic financial advice and to raise levels of financial capability for members of the public across the UK. I realise that that puts a big burden on the Money Advice Service but it is a relatively new service, and the Government and the regulators will want to look carefully at the effectiveness with which it does its work to make sure that it is as effective as it possibly can be.
	The amendment looks at how the FCA should balance consumer protection against the desirability of enabling ordinary members of the public to get affordable access to appropriate products. The challenge, which the amendment seeks to meet, is how to maintain the balance between delivering protection and maintaining access, and avoiding killing off a market by pursuing a too aggressive, zero-failure approach to regulation. We have considerable sympathy with the thrust of the amendment but I hope that I can reassure noble Lords that it is not necessary.
	The consumer protection objective is one of three operational objectives, which, as I have already said, sits alongside the FCA's objective to promote effective competition that is in the interests of consumers. The FCA will always have to strike a balance between its different objectives. Effective competition is very much about access and affordability, as I have explained. Therefore, the check and balance that noble Lords wish to see is built in at the level of the objectives.
	In addition, in advancing its general functions, the FCA must have regard to the principle of proportionality, which is the concept raised by the noble Lord, Lord Deben. The FCA is required to carry out and publish a cost-benefit analysis for all rules and guidance issued by it. The FCA cannot simply pursue absolute safety for consumers, for example, at the cost of choking off supply. That would not be compatible with either of its objectives or the proportionality principle.

Lord Deben: I can see what my noble friend is arguing. However, at no point do I see where the FCA is supposed to say about its own activities that they may be good for perfection but may reduce access. It is really a question of the non-accountability for the costs which the FCA lays on an industry. There does not seem to me to be a precise way-perhaps he would like to point to it-when its own activities and regulatory costs are assessed in that way. Proportionality is one word, but there are many occasions on which it looks as if the cost of regulation itself reduces accessibility to poorer people.

Lord Newby: Perhaps the noble Lord will look at the government amendment, which refers to the need for the FCA to consider,
	"the ease with which consumers who may wish to use those services, including consumers in areas affected by social or economic deprivation, can access them".
	The ease with which consumers can access products is affected directly by the costs that might be imposed by the FCA. This puts a duty on it to consider how its own costs, and not just the product characteristics, impact on consumers in those communities. I think what is required is there.

Lord Flight: It seems to me that the FSA is already doing this. It is weighing access against consumer risk. It said that you cannot market UCIS, VCTs or EIS to other than sophisticated investors because it has been judged that it is better to ban unsophisticated investors completely from being able to use these products as they are too high risk for them. That judgment has been made already.

Lord Newby: I am sure that the noble Lord is right. However, with this amendment, we are seeking to address the problem that people in deprived communities are denied access to many of the products that are available in more affluent communities. We want to give the FCA a nudge towards trying to see how simple products and various other products can be developed, which will support people in deprived communities. It does not in any way detract from the FCA's requirement to protect unsophisticated investors from sophisticated investment products.
	The challenge that this amendment seeks to deal with is that, for many people in deprived communities, the range of products available, even simple products, is very limited. We want to see how we can help to ensure that the regulatory framework does not keep that straitjacket as tight as it sometimes has been.
	I hope that I have been able to persuade your Lordships that the government amendment will have a material impact on access in deprived communities. I hope that I have also been able to reassure noble Lords that what they intend to provide through Amendment 25F is already enshrined in the Bill and that the noble Lord will be persuaded to withdraw his amendment.

Lord Sharkey: I support Amendment 27 and I am grateful to the Minister for bringing it forward. It is a significant and important change. As we discussed in Committee, we believe that the question of ease of access to financial services is key to a proper and robust regulatory system. Ease of access to financial services absolutely needs to be a factor in any consideration of whether competition is effective or not. Nowhere is this more true than in areas of social and economic deprivation. There is already evidence of market failure in precisely these areas, to which we will return in some detail with Amendment 28A.
	I am very glad to see that in this amendment the Government propose to put explicitly into the Bill consideration of ease of access to financial services in areas affected by social or economic deprivation.

Baroness Kramer: My Lords, perhaps I may add a word. Frequently when I get to my feet in the debate on this Bill, it is to criticise the language being used by the Government. In this case, I want to express real pleasure at what is now becoming the "access clause". As others have said, this is quite a big step forward for the regulator. The original concept of the role of the regulator was financial stability, guarding against anything that would challenge financial stability and looking out for and dealing with market abuse, partly because the language in the Bill has been very much driven by the appalling experiences of the financial crisis of 2007.
	As time has gone on, it has become more and more evident that we also have an underlying problem with market failure. I am one of the many who think that when market failure occurs, in some way the regulator must be engaged in that process. The banking institutions take notice of the regulator in a way which they will never do either of BIS or the Treasury. If you look at other countries, the United States is a very good example where the regulator is absolutely key in tackling issues around market failure with the consequence that even in the most deprived communities of the United States, a range of products is available to individuals and small companies which, frankly, we can only dream of in the UK. We will be going on to the data issue later.
	I am on the Parliamentary Commission on Banking Standards, as are others here including the right reverend Prelate. I, too, will take this opportunity to offer congratulations. I think that in this House we are all thrilled at his role of designated leader of the Church of England. However, the whole issue of socially useful banking has been absolutely key. This access provision in many ways deals with, or takes on, that issue of socially useful banking. It makes sure that there is a role for the regulator to look particularly at areas of social deprivation-but it is broader than that-to ensure that there is genuine access to financial services. In today's world, without financial services, it is very difficult to live successfully as an individual and even harder to begin to thrive as a small business.
	I very much want to congratulate the Government on a forward-looking amendment, rather than one that simply responds to the crisis of 2007.

Lord Blackwell: My Lords, I am grateful to the noble Lords who have spoken to my amendment and to my noble friend the Minister for his response, in particular for his statement that he and the Government are sympathetic to its aims. It is a very difficult issue. As he and I recognise, full advice based on a full fact find is a very expensive process. Only a small proportion of the population with significant assets would sensibly be able to afford that scale of advice and the costs that go with it. My amendment concerns the larger group of people who will not have personalised advice and will need to rely on what the Minister called generic advice, and which I described as guidance and information, where people will have to make their own decisions based on the information provided for them.
	The essence of my amendment was not focused on more people having access to personalised advice-while that would be desirable, the costs speak against it-but on ensuring that where providers are trying to serve the market through generic advice, guidance and information, the level of protection that consumers can expect reflects the reality of the level of information and guidance that they can be provided with, and that the industry is not discouraged from entering into that market because of the potential costs of compliance. I note my noble friend's comments that he believes this is adequately dealt with in the Bill. I am not completely convinced, but I will go back and read his comments and look at the Bill again before Third Reading. I encourage him and his colleagues to do the same to see whether there is a better way of resolving this difficult issue. In the mean time, I beg leave to withdraw my amendment.
	Amendment 25F withdrawn.
	Amendment 26
	 Moved by Lord Newby
	26: Clause 6, page 21, line 26, at end insert-
	"(ea) the differing expectations that consumers may have in relation to different kinds of investment or other transaction;"

Lord Newby: My Lords, this group of amendments concerns social investment, a topic that we have already spent considerable time discussing during the various stages of the Bill. It is an important issue, and one that the Government have given considerable thought to, and so it is only right that we return to it at Report.
	There is one point that we have made on numerous occasions and that I would like to reiterate before I turn to the detailed amendments. There is no doubt in my mind that the Government are committed to supporting the nascent social investment sector and will stand firmly behind it. However, we must not forget that this is, after all, not something in which consumers engage for purely altruistic reasons. If that were the case, individuals would simply donate or gift their money. That means that we must offer the appropriate protections to consumers entering into a social investment, as we would expect for any other financial transaction. As my noble friend Lady Kramer noted in our discussion on 25 July,
	"we have no wish to expose people to scams or to create an opportunity for this to be used as a back door to taking unfair advantage. That is extremely important".-[Official Report, 25/7/2012; col. 717.]
	I could not agree with her more.
	I turn to the government amendments in this group. Amendment 26 adds a new "have regard" to the list of matters which the FCA must consider when assessing what constitutes an appropriate degree of consumer protection. In future it will need to consider the different expectations of consumers in relation to different types of financial advice. This is intended to ensure that the regulatory approach takes into account that consumers might have non-financial-for example, social-goals.
	Amendment 45 will add a new regulatory principle to proposed new Section 3B which applies to both the PRA and FCA and will require them to have regard to the different nature and objectives of different financial services businesses. This is intended again to make clear that there should not be a one-size-fits-all approach to regulation.
	Noble Lords will be aware that these amendments do not refer to social investment specifically. That is because we want them to apply across the board rather than exclusively to social investment. We want the regulator to take a measured and targeted approach to regulating both alternative and existing firms and business models and protecting their consumers, and we do not want this to be limited to social investment alone. For example, there are other innovative sectors that would benefit from this, such as peer-to-peer lending. Incidentally, I can confirm to the House today that the Government will be transferring the regulation of peer-to-peer platforms to the FCA as part of the wider consumer credit transfer in April 2014.
	My noble friend Lord Sassoon promised an update on two matters of policy concern that my noble friend Lady Kramer and others have raised on previous occasions. My officials have been working very closely with the Cabinet Office and the FSA over recent weeks and months. On suitability, I hope noble Lords will be pleased to hear that the FSA has confirmed that its assessment is that the existing rules do not restrict advised sales of social investment products. I have therefore agreed with the FSA that it will find a suitable way of communicating this to the industry and to consider whether anything more needs to be done to increase certainty for industry, because I know that that has been a major issue. To decide on the best way forward, the FSA will liaise with industry and other interested parties in the coming months.
	On financial promotions, at this point the Government are not proposing to make any changes either through the Bill or through secondary legislation. We are alive to the potential for consumer protection concerns to arise in this area, and the potential for any instances of consumer detriment to have a highly damaging impact on a nascent sector. However, the issue is still being actively debated and is open for consideration as part of the Cabinet Office's red tape challenge. Interested parties may make representations on the issue until the final panel meeting takes place at the end of the month.
	There are also opportunities to explore whether there are any other, non-legislative ways of mitigating costs to social investment offerings of complying with the financial promotions regime, for example working with larger firms which may be able to provide assistance with compliance or approval. I encourage large firms to step up their efforts in this area. Finally, I can confirm that the FSA will provide a named contact to industry and other interested parties on matters relating to social investment. I hope that I have given noble Lords some reassurance that progress is being made in this area.

Lord Hodgson of Astley Abbotts: My Lords, my Amendment 31 is sandwiched between the two government amendments in this group. I think it is important not to look a gift horse in the mouth. Amendment 26, which adds to the consumer protection objectives, and Amendment 45, which adds to the regulatory principles, are a substantial improvement. The situation is certainly a great deal better than it was when we were in Committee and we had to rely on proposed new Section 137R, which is entitled "General supplementary powers". Therefore, I am most grateful to my noble friend, the Bill team and the Government for the thought that they have given to this matter.
	I shall speak briefly to Amendment 31. I recognise what my noble friend Lord Newby has said-that the Government have got it. By "got it", I mean they understand the importance of creating a regime which, while recognising the need for proper consumer protection, will provide an appropriate regulatory structure, which in turn will not impede the proper and measured development of social investment. I hope that the Government will keep up the pressure and continue to stress this policy clearly and strongly to a wider audience. The wider audience has two major parts to it. The first is the regulator, which my noble friend referred to.
	The Financial Services Authority very kindly arranged for me to meet two of its staff between Committee stage and now. They were interested, considerate, and keen to learn. However, without being in any way critical, they were a long way down the learning curve as far as social investment was concerned. When I discussed with them what their other responsibilities were, which included RDR, I was worried as to how they would be able to give sufficient time to the work that will be needed to provide and develop a proper regulatory framework for the issue of social investment. We have heard already this afternoon about the size and complexity of RDR and one is worried that social investment will be squeezed as a result. I hope that when my noble friend responds to my brief remarks he will feel able to stress again the importance that the Government place on the FCA in future and the FSA now in devoting the necessary time to the intellectual heavy lifting required to establish the right regulatory framework. This is not just a UK-centric issue; we have the thought leadership on social investment here in the UK, and some of the most innovative ideas have been pioneered here and are now being copied around the world. There is a real opportunity for the UK to lead the way in creating a new asset class, and we must not let it slip by allowing the regulator to put the issue into the "too difficult" tray.
	The other audience that I hope the Government can spend some time persuading is that of the professions. If the Government want the social investment market to grow, there are many professional groups that have the power to help or hinder-inter alia, financial advisers, bankers, accountants, lawyers, auditors and investment managers. Each of these groups will have their individual concerns, the intellectual heavy-lifting required to devise rules and procedure for the new activity and the inevitable risks in anything new. The argument will run among some in each of those groups that we could stand back until it is clear that the social investment market will take off. In part, this reluctance to move forward is one reason why it is not taking off.
	There are plenty of examples of how the attitudes in the professions have impeded this development. We came across a charity that wanted to make an investment of between £50,000 and £75,000 in activities in Nepal. It was told that if it was going to do that it would have to take a due diligence programme, which would have cost about £25,000. The result was that instead of making an investment, it gave a grant. It is those sorts of attitudes that one has to tackle-and it requires a fresh type of thinking. That example will not be dealt with by my amendment, but my amendment was designed to help to create an atmosphere in which social investment can become a mainstream rather than peripheral activity. That is why my preference has always been to have the words "social investment" in the Bill.
	As I have said many times in the Chamber, I have been involved in the private equity industry for most of my career. It is worth remembering that all these concerns, worries and questions arose 30 years ago as private equity investment got under way, with doubts about interim valuations, suitability and investor protections. We overcame the doubters then to the great benefit of the UK and, in doing so, made the UK a world leader in private equity-and we can do the same with social investment, if the Government are prepared to make their support and encouragement clear. Nevertheless, I recognise that the social investment movement is at a very early stage. There are great hopes for it, but it is still a very fragile flower. That is why my amendment, while mentioning social investment directly, is entirely permissive; it does not require the regulator to do anything now.
	It would be helpful if my noble friend the Minister could confirm that, in relation to the consumer protection objective, the Government recognise the different expectations that the social investors may have; that in relation to the competition objective, they recognise the importance of community finance provision to the financially excluded; and that in relation to the regulatory principles, they recognises the different natures and objectives of social investment businesses. I would be most grateful if he could do this when he comes to reply. Notwithstanding that, I again reiterate my thanks to the Government for the improvements that they have made.

Lord Flight: My Lords, it seems to me that social investment is clearly a territory that should be confined only to more sophisticated investors. It is unrealistic to imagine that unsophisticated retail investors will really understand investing in a project that might return them 10% or 20%, or they might lose all their money-or it might really be a charitable gift. I would be extremely concerned if social investment was something that was being made widely available to unsophisticated investors. In terms of the list of the products that the FSA or FCA might decide to keep away from unsophisticated investors, it ranks much higher than a VCT, for example, in terms of understandable risk.

Lord Phillips of Sudbury: My Lords, my name is on Amendment 31, but before saying a word or two about that I would like to thank my noble friend the Minister for government Amendment 26, which is surely another big step forward to take account of social investment.
	Amendment 31 is a harmless amendment, I am almost inclined to say, which gives a bit of flexibility in the light of experience for the Government to amend the considerations to which they must have regard when considering what degree of protection to make for consumers under proposed new Section 1C. That seems a bit of good common sense, so I hope that the Government will accept it.

Baroness Noakes: My Lords, I hear what the Minister said about the drafting of Amendment 26 not referring to social investment or anything like that. As drafted, however, it says that the things which the FCA must take into account include,
	"the differing expectations that consumers may have in relation to different kinds of investment or other transaction".
	Read as it is, that seems to require the FCA to take account of consumers' expectations, whether or not they are reasonable. So if consumers have unrealistic expectations about what they will have in return from their pension investment, for example-and that is a fairly widespread misconception-because the Government have chosen to use this unspecific form of drafting this could quite easily be interpreted as applying to expectations that operate in a quite different sphere from that intended. While the Government might say that it is intended only for social investment, these are clear words; they do not need any other explanation from the Government to make them understandable. It may be dangerous in its current drafting to leave it without the reference to social investment that my noble friend's Amendment 31 has. His amendment is clearly rooted in what it is that is trying to be achieved.

Baroness Kramer: My Lords, I just want to join in the chorus that essentially says to the Government that we appreciate the move forward that comes with their amendment. I am very supportive of the noble Lord, Lord Hodgson of Astley Abbotts, and his thought process over Amendment 31. It has tremendous overlap with Amendment 26-and I think that I can be very happy with Amendment 26 today. But the financial promotions order issue is going to have to be tackled. I would like to reply very briefly to the noble Lord, Lord Flight, who suggested that a social investment should be marketed only to sophisticated or high net worth individuals. The kinds of projects involved in social investment may be an extension to a local school, or a resettlement programme attached to a local prison. It is quite likely to be a small project-that is the whole point-of the kind that cannot afford to go and get regulated so that it can be marketed to the general public. It is the kind of project of £1 million or £2 million, which cannot pay the £150,000 that would put it into a regulated environment so that it could be marketed to the general public. The whole point is to provide those people with an alternative who, typically, might be asked to donate to a local project, so that they could invest in that local project. You are talking about people who would be close to the project, understand the community and perhaps even engage themselves in the work that the community does. So we are looking at a very different range of projects when we talk about social investment.
	Although the language is very tricky and I recognise that it will not be easy, at some point the Government will have to get a grip on the financial promotions language and find a way to craft it so that it can be sold appropriately to people who know and understand what is going on but will never meet that benchmark of being a high net worth individual or a sophisticated investor. They might put £1,000 or £2,000 into a project, or perhaps even £50 or £100. At the moment, they are barred from doing anything other than donate, which seems reasonably insane when we look at the kind of projects that are involved.

Lord Newby: My Lords, I thank all noble Lords who spoke on these amendments. The noble Lord, Lord Hodgson of Astley Abbotts, asked for specific confirmation about the Government's approach in respect of consumer protection, regulatory principles and competition. I am very happy to confirm that, in respect of consumer protection, the Bill will now require the regulators to consider expectations; the regulatory principles, ditto. As far as the competition objective is concerned, it will consider access in general terms. I hope that I have satisfied him on those points.
	On his concerns in respect of the regulator and the professions, I am not at all surprised at what he said about the regulators being on a learning curve-not least because this is a rapidly growing, innovative area which has been very small. Because I think it is rapidly growing, and because we are giving it a bit of a push, I think that the regulator will be required to take it more seriously. I think that all those involved in the sector now have a lever to apply to the FCA to ensure that it does not get submerged as an area of interest.
	As far as the professions are concerned, as I said earlier, the one area where we are hoping that some of the larger firms will get involved-particularly in terms of bringing products to market-is where the bank can act as an umbrella under which social investment projects can seek funding, so they themselves do not have to go through huge regulatory hoops. We are at a very early stage in evolving a mechanism for doing quite a lot of these things because they are so new.
	The noble Lord, Lord Flight, raised the point about sophisticated investors; he said these were sophisticated investments. The noble Baroness, Lady Kramer, answered him in large measure, because although they are sophisticated-in the sense that you might lose all your money-we do not envisage that, unlike many sophisticated products, they will be restricted to people putting in very large amounts of money. We hope they will be projects that will attract relatively small sums, albeit with the acknowledgment that there may be a very considerable risk attached to the investment.

Lord Flight: I thank the noble Lord for giving way. It seems clear to me that, whether spoken or unspoken, government policy is to keep unsophisticated investors away from any form of higher risk investment. You do it by the RDR getting rid of the majority of IFAs; you do it by banning the ability to market VCTs-pretty low risk-and EIS to unsophisticated investors. Both of these could be quite small investments. I think the Minister has followed the logic that if that is the policy, it does not fit to say, "Ah, but it is perfectly all right to market a new concept which people will not particularly understand, or understand that they might lose all their money". In the spectrum of risk, it is a relatively high risk investment. As far as I can see, the policy is all over the place.

Lord Newby: It is not all over the place because people who are investing in these products are doing so for different motives. They are doing so because they want a project to be successful and to achieve a social outcome. That is not the kind of product that one normally associates with a product that is limited to sophisticated investors, so I think that the noble Lord is talking about two different sorts of products entirely. Very often, the products that are marketed to sophisticated investors have the attraction that, if all goes well, they will bring a larger than average rate of return. Nobody expects the kind of products we are talking about here ever to be generating vast returns for anybody; that is not their purpose. The purpose is to get new money into socially desirable areas of activity. There is a distinction and I hope that he is persuaded that we are not all over the place.
	Although I was beguiled, as always, by my noble friend Lord Phillips' comments about my accepting Amendment 31, I am sorry that I am not able to do so. I think that our amendment does the business.

Lord Phillips of Sudbury: I am terribly sorry to interrupt my noble friend. He says that Amendment 26 does the business. With respect, Amendment 31 is a very gritty one: it simply gives the Government of the day the chance to amend, or add to, the crucial provisions by order. Surely that is desirable, because we wait to see how all this is going to work out.

Lord Newby: Yes, we do indeed, but the government amendment is broader and gives considerable flexibility to the FCA in the way that it deals with this new mandate.
	The noble Baroness, Lady Noakes, raised the question of what happens if consumers have unrealistic expectations, and she thought that this could, in effect, be a dangerous amendment. I do not think that it is, because I do not believe that this is the way that the amendment will be interpreted by the FCA when it looks at products in this area and gives advice about them. While I can see where she gets the arguments from, I am confident that the FCA will ensure that we do not have the kind of dangerous consequences which she mentions.

Baroness Noakes: I thank the Minister for that, but how can he be confident that the FCA will-for all time-interpret the words in the way that he wishes them to be interpreted?

Lord Newby: My Lords, it is very dangerous to be confident about anything for all time, but if you turn the proposition of the noble Baroness on its head, is it conceivable that the FCA would interpret this clause at any point in a way that would be dangerous? Frankly, I cannot see why it would. One can never say absolutely that in 50 years' time-assuming that this piece of legislation is on the statute book-interpretations might be exactly the same as they are today, but it would be perverse to think that the FCA would interpret this provision in a way that opened up the dangers about which the noble Baroness is concerned.
	Amendment 26 agreed.
	Amendment 26ZA
	 Moved by Baroness Hayter of Kentish Town
	26ZA: Clause 6, page 21, line 31, at end insert-
	"( ) the need of the Consumer Panel to have its views heard by the PRA"

Baroness Hayter of Kentish Town: My Lords, there are two major reasons for these amendments, which seek to ensure that the PRA hears the views of consumers or their spokespeople. First, it is imperative that those who understand, follow and monitor the experience and needs of users of financial services-whether individual clients, SMEs, or holders of collective investments-can input into the decision-making of the regulator of banks, the PRA. There will be many decisions falling to the PRA, not least on leverage rates and, if the press is to be believed, even over bank charges. In both the mortgage and the insurance markets, there is clear interaction between conduct and prudential regulation and the potential for overlap between the PRA and the FCA. The importance of co-ordination is illustrated by the role the consumer panel played in the FSA's review of mortgage market regulation, where it ensured that unnecessary or onerous restrictions on lending were not introduced.
	The PRA could also have a significant impact on mortgage customers where decisions about the stability of the market will affect prospective and existing customers, with the latter at risk of becoming trapped in their existing arrangement. Rules around forbearance and repossessions also impact on consumers, particularly when pressure on household budgets is acute. We know that the ABI is concerned that the PRA risks being too narrowly concerned with banking and insufficiently focused on insurance. This is more rather than less likely with the absence of any consumer viewpoint. Given that many PRA decisions will impact significantly on consumers, it needs to hear their viewpoint.
	Secondly, it seems extraordinary that the Government should think it right to set up a special PRA practitioner panel yet totally ignore the needs, interests and, indeed, the rights of those whose money, savings and expectations drive the system, provide its profits and who depend on this part of the regulatory architecture for their well-being. This is not even-handedness; indeed, it is worse. It suggests that regulation will be a rather cosy business between the regulator and the regulated community, with no outside user interest to counter the view with the particular inside vested interest. This is not the successful model that existed with the FSA. It was not the first choice of the industry and it is not one that your Lordships' House should accept. We therefore want to see the PRA set up appropriate arrangements to consult consumers or their representatives, and in particular to take account of submissions from the FCA's consumer as well as its practitioner panel. It will not be sufficient for the FCA to put the consumer panel's contribution on its behalf second-hand to the PRA, as the FCA will have a broader role to play in its interaction with the PRA. Should we fail to persuade the Government of the need for the PRA simply to hear the consumer panel-that is surely not too much to ask-we have suggested that the FCA must specifically take account of the need of the panel to have its views heard by the PRA. This should at least ensure that the FCA takes steps to act as a proper conduit. I beg to move.

Baroness Noakes: My Lords, I am grateful to the Government for the amendments that they have tabled, commencing with Amendment 32, in regard to the PRA practitioner panel. However, as the noble Baroness, Lady Hayter, said, that is not the solution that the industry wanted and it is a rather narrow solution. Therefore, I have considerable sympathy with what the noble Baroness said in relation to the need for the PRA to listen to a broad spectrum of views, including that of the consumer panel. In particular, I am more attracted to her Amendment 37ZB, which would require the PRA to have some sort of dialogue with each of the panels which are being set up for the FCA: that is, the practitioner panel, the smaller business practitioner panel, the consumer panel and the markets practitioner panel. Each will have their own particular issues which would be usefully communicated to the PRA in certain circumstances.
	Notwithstanding the fact that there will now be a practitioner panel for the PRA, I continue to have concerns that the PRA's concept of consultation is a narrow one when it should be a broad one based on regular dialogue and feedback loops with the industry. Therefore, I have very great sympathy with what the noble Baroness, Lady Hayter, has said.

Lord McFall of Alcluith: My Lords, I support the amendment and the proposition of the noble Baroness, Lady Noakes. If we look at the history of prudential regulation and consumer interest, we find that prudential regulation has trumped conduct of business for a number of years. I suggest that the PRA will be a more enhanced body than the FCA and therefore will win out all the time. Therefore, what the noble Baroness is saying about a broader range of opinion is extremely important. We need to look at the history of the representation of consumers in the financial services industry over a number of years. I lobbied the FSA for years to get a consumer representative on board. It came back to me very excited one day and said, "We have someone on board". However, one out of 12 or one out of 13 is inadequate. It is very important that we redress the asymmetry of knowledge that is at the centre of selling because we have to restore trust and confidence in the industry, and to do that we have to balance the needs of the industry with those of the consumer. Therefore, I could not agree more with the need to have broader representation. That would put the status of the PRA at one with that of the FCA so that they served the interests of the industry and the consumer.

Lord Newby: My Lords, the Government obviously recognise that consumers have an interest in the outcome of the PRA's actions and decisions. In particular, consumers will be beneficiaries of a safer and more stable financial system. However, the PRA will not focus on consumer protection as an end in itself. That will be the job of the FCA.
	New Section 3D in the Bill requires the PRA and the FCA to co-ordinate their functions in areas of common regulatory interest where one may have relevant expertise or a material adverse impact on the objectives of the other. This means that while it is right that the PRA must focus on its safety and soundness objective, where its actions may impact adversely on consumer protection it will need to listen to the FCA, which obviously has the lead consumer protection objective. As the regulator with expertise and analytical capacity in relation to consumer protection, it is right that the FCA should consider stakeholder perspectives, including the views of the consumer panel, come to a balanced view and then communicate this view to the PRA. I do not think that it would be sensible to require the PRA, which will not have detailed expertise in general consumer issues, to consider separate consumer representations and potentially develop an alternative rival consumer view about the best way to deliver consumer protection.
	For these reasons, I cannot support the amendment. I hope the noble Baroness will be satisfied that the system will enable all consumer concerns to be represented to the PRA, but that that will be done through the principal channel of the consumer panel that the FCA is to establish.

Baroness Hayter of Kentish Town: My Lords, I thank the noble Baroness, Lady Noakes, and my noble friend Lord McFall for their support. I am sorry the amendment does not find favour with the Minister. I think he misunderstands. If he thinks consumer protection is just about conduct, he does not understand the impact of things that the PRA will be doing. The FCA will put only a combined view to the PRA; it will not put the consumer viewpoint.
	If we listen to the Minister, the PRA will still listen to consumers but through newspapers, through lobbying, through letters, and so on. I would like something different: a grown-up dialogue between the consumer panel and the PRA, rather than the sort of campaigning that the rest of us have done as lobbyists for many a year. I still hope for that. Therefore, I would like to test the opinion of the House.

Division on Amendment 26ZA
	Contents 116; Not-Contents 196.
	Amendment 26ZA disagreed.

Amendment 26A
	 Moved by Lord Flight
	26A: Clause 6, page 21, line 31, at end insert-
	"(3) In discharging the consumer protection objective, the FCA shall work with the Department of Education to secure the provision of teaching on financial literacy at both primary and secondary level as part of the core curriculum."

Lord Flight: My Lords, I return with an amendment relating to the teaching of financial literacy in schools essentially because when I raised the matter in Committee, understandably, the Minister referred me to the Department for Education. I took up the issue with the Chief Secretary and I am afraid there was yet a further sort of ducking motion and eventually I received a kind letter from the Minister David Laws to the effect that this was really about teaching mathematics and that perhaps I should take it up with a different Minister.
	It seems to me that we have a lot of academic debate about how to deal with appropriate consumer protection, whereas, for the long term, the biggest thing that we can do is achieve a situation where at least the next generation understands finance-not in all its intricacies but the fundamental concepts. What is a mortgage? What is a pension? What is debt? What is equity? What is a student loan? What is compound interest? With the greatest respect to the Department for Education, I think the mathematics bit is way down the line. I suggest that the first bit is teaching people the concepts.
	I may have made this comment before, but both of my parents were at London grammar schools in the 1920s when a standard part of the general certificate was the teaching of the concepts of finance and basic accountancy. Unfortunately, that was got rid of at the time of war, when I think it was regarded rather as a dirty subject to teach children. I well remember that my mother was pretty much equipped for the rest of her life with what she learnt in her teens at her school.
	There is widespread agreement across all parties that this is something worthy to achieve, but there is a lack of ability to grasp it and to make it happen. The experiment with PFEG did not work particularly well because PFEG's role was to try to teach existing teachers to teach financial literacy and few teachers felt confident enough to do that, often because they did not understand the subject themselves. Interestingly, the more successful courses have been put in by RBS, where the teachers are provided directly, but that does not extend to all schools by a long chalk. I think the majority of schools are still relatively uncomfortable with the territory and pupils are not being taught financial literacy.
	PFEG has lost much of its funding. It has gone to an alternative body which I hope will use it more constructively. As we presently stand, the biggest single problem in the whole area of consumer protection is that people do not understand what they are investing in. Not only do they not understand the complexities but very frequently they do not understand the basic concepts and how they operate. I would hope that this amendment, which deliberately ties in with the consumer protection objective, might see the light of day in some form and see a commitment to make the teaching of financial literacy happen. It has been on the agenda since the FSA was established back in 1999-2000 and the progress to date is disappointing. To put it bluntly, unless the Department for Education and the Treasury get together, work out what is wanted and implement it with some constructive work from the FCA, nothing much will happen for quite some time to come. I beg to move.

Lord Phillips of Sudbury: My Lords, I support the sentiment of the noble Lord's amendment. He is absolutely correct in diagnosing the woeful inadequacy of education for ordinary pupils as being a source of trouble now and the problem is getting worse. I should declare an interest as the founder and now president of the Citizenship Foundation. We work with over half the state primary and secondary schools providing citizenship education, including a very big vein of financial education which was for many years supported by Deutsche Bank. I wonder whether this amendment attacks the issue in quite the right way in that it seeks to insert, as a matter of primary law, financial literacy into the core education curriculum. That has been hugely debated for the past year or more and I am not even sure that Mr Gove has not already come out with his latest proclamation on what shall be the core curriculum in the future.
	The noble Lord, Lord Flight, is absolutely right in the broad thrust of what he says. As with my complaint about the failure of governments of all persuasions to provide adequate implementation resources for legislation such as that we are putting through in this Bill, so too governments of all persuasions fail consistently to give our young people the chance to be citizens with sufficient knowledge and confidence to deal with the complicated world they are supposed to be citizens of.

Lord Deben: My Lords, I would like to support the comments of the noble Lord, Lord Phillips. This may not be the right amendment but I hope the Minister will accept its thrust. It seems to me very curious how the education curriculum excludes for many schools and scholars two issues which may be of most importance to them in future life. One is financial literacy, which should be taught to boys and girls, and the other is proper cooking, which should also be taught to boys and girls. The obesity problem which we have today is very much affected by the fact that we do not seem to be able to produce at home the food which enables us to have a proper balance. The financial problems we have today seem to be very much affected by the fact that we do not seem to be able to produce in the average family the ability to make the sort of decisions which necessitates a basic understanding of the way in which finance works.
	I hope the Government will not just brush this amendment aside on the basis that it does not quite work. I think it probably does not quite work but I hope the Government will take it seriously as one of those things that we really have got to stop hiding from. If young people do not learn how to balance their budgets and do not understand the basics of finance, it will not be surprising that financially illiterate people will make choices they should not make. The fault is not theirs. It is the fault of an education system which has decided that these necessary tools of life can be left on one side. I hope that the Government will take seriously the amendment of the noble Lord, Lord Flight.

Lord Newby: My Lords, we can indeed all agree on the importance of financial education so that young people and adults are able to take responsibility for their finances and make informed financial decisions or, to repeat what the noble Lord, Lord Flight, said, know what they are investing in. I absolutely agree with the noble Lord, Lord Deben, about schools getting better at teaching the necessary tools of life. He mentioned cooking. Before I took up this post, a number of years ago I was an adviser to the School Food Trust, which has been extremely successful at starting cooking clubs across the country. We are looking to provide the same kind of experience in financial literacy.
	There are a number of ways in which we can do this, one of which is through the formal curriculum. The All-Party Parliamentary Group on Financial Education for Young People is one of the largest in Parliament and it has been giving guidance to the Department for Education about financial education and the curriculum. Another is to consider how we can insert financial literacy into school life in a way that young people will find engaging. In that regard, the work by organisations such as the Citizenship Foundation and some of the banks has been really valuable. The Royal Bank of Scotland's money sense for schools programme and Nationwide's financial skills programme provide materials which make the subject interesting and bring it to life. That is very important. It is worth underlining that £25 million of initiatives by the financial services sector took place last year.
	The amendment requires the FCA to work with the Department for Education. The FCA is the regulator but the Money Advice Service is the appropriate body to work with the DfE at an operational level on matters of financial literacy. The Money Advice Service was established by the FSA and its objectives are set out in new Section 3R of FiSMA, as inserted by Clause 6 of the Bill. Those objectives specifically include a requirement to promote,
	"the publication of educational materials or the carrying out of other educational activities".
	The Money Advice Service has been engaged with officials from the DfE and has provided a written response to the department's invitation to engage in the debate on financial education in the curriculum. It will continue this engagement when the formal consultation on the national curriculum takes place in the new year.
	I am extremely sorry that the noble Lord, Lord Flight, has not had a reply from my right honourable friend David Laws in the terms that he would wish. The Department for Education has attempted, through the new EBacc, to make sure that all children have basic academic skills at school. The life skills we are now talking about need to be added to those parts of the curriculum that are not given statutory cover. However, curricula are definitely beyond my pay grade and the exact way in which we ensure that financial literacy is better promoted in schools is an issue that the Money Advice Service and the Department for Education need to be engaged in.
	I agree with the noble Lord, Lord Flight, on the importance of financial education and on the need to improve the way in which we teach it in schools, but I do not think that his amendment is the way we will achieve it. I hope the other ways that I have mentioned will prove more effective and that my noble friend will feel able to withdraw the amendment.

Lord Flight: My Lords, I accept that the amendment is not appropriate, although it was the only way in which I could raise the issue. I would like to think that the Treasury will be motivated to co-operate with the Department for Education to address this issue. That is the only way in which we will make significant progress. I beg leave to withdraw the amendment.
	Amendment 26A withdrawn.
	Amendments 26B and 26C not moved.
	Amendment 26D
	 Moved by Lord Phillips of Sudbury
	26D: Clause 6, page 21, line 42, at end insert-
	"( ) the fairness and integrity of policy and conduct of those directing or operating in the financial markets"

Lord Phillips of Sudbury: My Lords, it is now three and a half hours since we had the debate on this amendment and scarcely anyone who was present then is present now and vice versa. Therefore, it would be rather fruitless to do as I had intended originally and put the amendment to the vote. However, I shall bring back the principle involved-which is the primacy of integrity over the other two objectives-at Third Reading. On that basis, I withdraw the amendment.

Lord Geddes: My Lords, as the noble Lord has spoken to the amendment, I must give the opportunity for other noble Lords to speak if they so wish.
	Amendment 26D withdrawn.
	Amendment 27
	 Moved by Lord Newby
	27: Clause 6, page 22, line 9, at end insert-
	"( ) the ease with which consumers who may wish to use those services, including consumers in areas affected by social or economic deprivation, can access them,"
	Amendment 27 agreed.
	Amendment 27A not moved.
	Amendment 28 had been retabled as Amendment 28A.
	Consideration on Report adjourned until not before 8.36 pm.

Higher Education: Reform
	 — 
	Question for Short Debate

Lord Wills: To ask Her Majesty's Government what is their assessment of the impact of recent reforms of the higher education system on university education and research in the arts, humanities and fundamental science.

Lord Wills: My Lords, I sought this debate tonight to highlight concerns about the future of the arts and humanities and fundamental science in higher education. These subjects play a vital part in our country's well-being but they are not immediately apparently commercially valuable and that places them more at risk than they should be.
	The study of the arts and humanities, and research into them, are crucial to developing the critical thinking and human empathy which nourish democracy and nourish society more widely, and which, incidentally, apart from their intrinsic value, also provide the best possible environment for business and economic prosperity to flourish.
	All Governments of recent times have recognised this. However, we are entering a new era of higher education, where students incur unprecedentedly large amounts of debt to pay for their education and where they will be entering an increasingly competitive and insecure jobs market. In this new era I have three concerns about the future of the arts and humanities. First, that students will abandon their studies in favour of subjects that, on graduation, are more likely to get them work and larger salaries. Secondly, that those who do study them will tend to be those who need to worry least about debt and work-in other words, the children of the affluent. It would be a sad day if the study of these vital subjects were to dwindle and become the preserve of the children of the affluent. Such outcomes would not occur independently of government. They would flow directly and significantly, though not exclusively, from policy on higher education. My third concern is that such trends could encourage government further to reduce support in higher education for the arts and humanities.
	This is not a prediction. The data for the past decade are too mixed to be able to draw any firm conclusions about trends, and the radical changes introduced by this Government to higher education funding are too recent for any data to be meaningful. However, it is a worry because students, like most of us, respond to economic stimuli, and in this case the justification for studying these subjects is not economic but cultural.
	The Minister may say that there is no cause for alarm-Governments tend to say that kind of thing-but she will be aware that such concerns are not confined to this country. Many countries are undergoing much the same pressures as we are, and have much the same concerns about the future of these subjects. Three years ago, for example, in an article for the New York Times, the president of Harvard wrote of her concern that in the US,
	"there has been a steep decline in the percentage of students majoring in the liberal arts and sciences, and an accompanying increase in preprofessional undergraduate degrees".
	The distinguished American philosopher Martha Nussbaum wrote, in Not for Profit: Why Democracy Needs the Humanities, which was published in this country earlier this year, of her concerns about education in the United States. She wrote:
	"The ability to think and argue for oneself looks to many people like something dispensable if what we want are marketable outputs of a quantifiable nature".
	She worried that,
	"the humanities are widely perceived as inessential".
	She concluded her book, which looks at liberal arts education across the globe, by saying that, sadly, in terms of support for the traditional role of humanities, the worst case by far is Britain. Professor Collini of Cambridge University has written of,
	"the difficulty, in a consumerist democracy, of justifying the expenditure of public money on open-ended scholarly enquiry".
	For all their merits, markets are imperfect. They should not be the measure of all things. The introduction of market disciplines into higher education should not be allowed to jeopardise the viability and vibrancy of subjects so critical to our national well-being. I should be grateful if the Minister would indicate that, if my concerns turn out to be justified, the Government will not stand by but will intervene to protect the position of the arts and humanities in higher education. There are a range of possible interventions, although at this stage I am not advocating any particular one. I am simply asking the Government whether, in the circumstances that I described, they would be prepared to intervene to preserve the position of the arts and humanities.
	I turn now to the question of research into fundamental science. For the past 20 years, successive Governments have tried to develop what this Government have called a "robust methodology" to allocate scientific research funding on the basis of the impact such research makes on what they described as,
	"society, public policy, culture, the quality of life and of course the economy".
	This sounds reasonable. Democratically elected Governments need some measure to reassure taxpayers that their money is not being wasted.
	It might seem as if such a formulation would protect fundamental science, as impact is to be measured over 10 to 50 years. However, the impact of fundamental science is often hard to measure except with hindsight, and the position of fundamental science is made all the harder when all the noises from politicians from all parties are, perhaps understandably, about the need to promote economic growth. We hear very little about the cultural merit of advancing knowledge for its own sake, or of the value of transmitting learning and knowledge to future generations. This is dangerously short-sighted, not simply because we neglect cultural enrichment at our peril but because it is to misunderstand the complex relationship between scientific research and economic development and prosperity.
	Hendrik Casimir, a theoretical physicist who once worked with Niels Bohr and became research director of Philips-so had a foot in each of the two camps of academic life and business-once pointed out the role of fundamental science in the development of transistors, basic computer circuits, nuclear power and electronics. What all those had in common, as Sir Christopher Llewellyn Smith, the former director-general of CERN, argued, was that they were all highly profitable and were all unforeseen when the underlying discoveries were made-and in each case, there was a long time lag between the discoveries and their exploitation.
	It is simply not possible for politicians and scientific administrators to predict with any certainty what the impact of scientific research will be. What, for example, might have been the impact assessment of Tim Berners-Lee's original work on the world wide web 20 years ago? It was designed to enable different national proprietary computer systems to communicate with each other at CERN, an organisation dedicated to,
	"nuclear research of a pure scientific and fundamental character".
	It would have taken a bold and visionary leader of the sort not usually found in the ranks of politicians and scientific administrators to have predicted the impact of that world wide web just 20 years later.
	Intellectual curiosity and exploration, not "impact", ought to be the yardstick for scientific research, and politicians ought to have the courage to justify that to taxpayers. Apart from all its other merits, history and experience suggests that, in the long term, this is the best way to ensure the economic growth to which the Government attach such priority. If problems develop with the arts and humanities in higher education, and with fundamental science, they may well become evident only when it is too late, when the most brilliant academics and researchers have left for more congenial environments overseas, and when intellectual communities have been gravely damaged.
	Research and learning subsist in a fragile ecology which, once harmed, can take a long, hard time to repair and rebuild. The science base in this country received a tremendous one-off boost from brilliant refugees from Nazi tyranny-a boost that lasted generations as outstanding scientists passed on their learning and wisdom to new generations. Ill judged public policy could reverse that process, to the benefit of other countries.
	The House of Lords Science and Technology Committee report, Setting Priorities for Publicly Funded Research, stated that it understood the wish of the Higher Education Funding Council to take account of the wider impact of research, but that it was,
	"yet to be convinced that a practicable and fair way of doing so has been found".
	It suggested that the weighting given to "impact" should be significantly less than the 25% proposed. Since then, I understand that the Government's response has been to lower the weighting to 20%, but with an expectation that it may rise again in future.
	Will the Minister say something more about this tonight? Will she also say whether, in the weighting given to quality of outputs, which accounts for 65% of the total and the criteria for which are "originality, significance and rigour", there is any overlap between the term "significance" and "impact"?
	As the Government review such concerns and develop further their policy on allocating research funding, I hope that they will bear in mind that research in near-to-market fields where it is already apparent that there are commercial opportunities should surely be more appropriately funded for the most part by the private sector and not by the taxpayer.
	In conclusion, I hope that the Minister will reassure your Lordships tonight that as the Government develop their approach, their "robust methodology" will be sufficiently ecumenical to place the highest priority on fundamental science and the pursuit of knowledge-a pursuit in which this country has such a glorious history and that should not be abandoned now.

Baroness Morris of Bolton: My Lords, I thank the noble Lord, Lord Wills, for bringing this important subject to the attention of your Lordships' House. I will take the opportunity to make more general comments but my concerns have just as much effect on the arts, humanities and fundamental science.
	In July, at the degree congregation of the University of Bolton, where I have the honour and privilege of being chancellor, I said, with confidence, that our university was well placed to meet the considerable challenges faced under the reforms to higher education. October 2011 had witnessed our biggest intake of students, with queues around the building to register. We had one of the healthiest bank balances in our history and had responded to the changes in a positive and innovative way, keeping our fees low to deliver value for the learner and the taxpayer, and restructuring our courses to ensure the best possible experience for our students.
	Then came the downturn in demand. Universities like my own are being affected and are going to have to make and take some hard decisions to balance the books. Good people face losing their jobs. Large numbers of our world-leading universities, including Russell Group universities, have not been immune from the reduction of more than 60,000 first-year learners as new fee levels were introduced. At the same time, established universities face new competitive pressures, with commercial and for-profit entrants taking advantage of increased fees and market conditions. No one on this side of the House would ever be against the operation of the free market but there must be a level playing field, with similar freedoms or restrictions placed on all providers in the marketplace. For example, the student number control experienced by publicly funded universities is not being applied to the for-profit sector.
	I have two questions I wish to raise on these issues but will first briefly mention student visas. A large proportion of Bolton's overseas students come from India, and India seems to have decided that the UK is no longer welcoming to their students. We must never take any risks with our home security and have to ensure that students are genuinely coming here to study. However, international students establish strong and lasting links with the UK, and unless we make our processes more user-friendly and send a message to the world that the UK values overseas students, our universities and our country will be the poorer, both culturally and economically.
	How do the new funding regime and the significant downturn in the take-up of places at universities in England affect the national interest in our increasingly knowledge-based economy? How long can we afford to have reduced participation in higher education and continue to compete with the best in the world? What mechanism do the Government propose to ensure fair competition between maintained and for-profit providers?
	British universities are the envy of the world. They are huge contributors to the well-being of this country and to the Treasury's coffers, and we must do all we can to ensure their continued health and success.

Baroness Sharp of Guildford: My Lords, I, too, congratulate the noble Lord, Lord Wills, on launching a very timely debate given today's announcement by the Council for the Defence of British Universities. Its core principle is to emphasise the public gain from advancing university education. I notice that in an article in the latest Times Higher Education, Sir Keith Thomas states:
	"A university education should assist students to develop their intellectual and critical capacities to the full-that is a good in itself, but it will also give them the transferable skills that will be essential in an uncertain future. Scientists and scholars should be permitted to pursue knowledge and understanding of the physical and human world in which we live and to do so for their own sake, regardless of commercial value".
	This echoes the sentiments that the noble Lord, Lord Wills, expressed and takes me back to a report on higher education that I found incredibly valuable when it was published and continue to do so today. It was that of Lord Dearing. In his report, he did his best to define what he and his committee considered to be the four main purposes of higher education. Let me quote them because they link up well this same theme. They are,
	"to inspire and enable individuals to develop their capabilities to the highest potential levels throughout life, so that they grow intellectually, are well-equipped for work, can contribute effectively to society and achieve personal fulfilment; to increase knowledge and understanding for their own sake and to foster their application to the benefit of the economy and society; to serve the needs of an adaptable, sustainable, knowledge-based economy at local, regional and national levels; to play a major role in shaping a democratic, civilised, inclusive society".
	That sums up what I would like our university sector to do and I think that this view is shared by a great many people.
	One of Lord Dearing's other principles was that the cost of universities should be shared fairly equally between, first, the individual, who, as he pointed out in his report, benefits in terms of extra earnings; secondly, the Government, because there is public benefit; and, thirdly, employers, because there is a definite benefit to them. His suggestion was that the individual should contribute approximately 25% of the cost. With the introduction of the tuition fees that he proposed in 2001-02, the student contribution rose to just about 20%, with the top-up fees in 2006 taking that increase to 33%-so the individual has been contributing 33% of the cost of teaching and learning for higher education. The current increase, the trebling of tuition fees to £9,000, has taken the individual's contribution to more than 50%. OECD statistics highlight the fact that the UK even before this increase was spending a lower proportion of its GDP on higher education than most of its competitors, approximately 0.6%. When you compare this with countries that we often seek to emulate such as South Korea, Singapore, the USA and Finland, you see that all of them are spending rather more than 1.5%-in other words, almost three times what we are spending. These figures were taken before the current increase, which will take us even higher. Are we cutting it too fine and putting too much emphasis and burden on the individual student?
	I should like to raise two further points about the impact of fees. The first is in relation to mature students, where I worry very much that the drop in numbers has been disproportionate, and the second is in relation to postgraduate students, where, again, the issues raised by the increase in fees are substantial.

Lord Rees of Ludlow: My Lords, I shall go back even further than the noble Baroness, Lady Sharp, to the Robbins report, which 50 years offered an articulate vision appropriate to the 1960s. Today, higher education has hugely expanded, but some things have not changed, and we should still temper the managerial and instrumental view of higher education with an appreciation of its intrinsic value. It is still a public good as well as a private benefit for young people to receive a rigorous education.
	Our system should have become more diverse as it expanded, but that has not happened. Nearly all universities focus on three or four-year degrees; nearly all offer at least some postgraduate degrees and aspire to rise in a single league table. A latter-day Robbins would surely have set out a blueprint for a more diverse "ecology" of institutions, with more flexibility, more collaboration and a "credit system" that facilitates student transfers between them.
	The Government hope that the mantra "the money follows the student" will bring this about. But even if, when the dust settles, the system is more diverse, the transition will have been more painful and wasteful than if it had been planned. And it frankly is not clear that the market-driven choices of financially pressured students will drive up teaching standards and raise levels of rigour and achievement rather than favouring "soft" and cheap options.
	Let me mention two trends that a latter-day Robbins might commend. First, the Open University's well tried model-distance learning supplemented by a network of local tutors and so forth-has vastly more potential in the era of the internet and smartphone than when it was founded. Indeed, because distance learning will erode the benefits of the traditional "mass university", there will, I think, be a deepening bifurcation between, on the one hand, institutions that really offer personal mentoring and, on the other, the OU model. The serious downside of the current funding system is that the OU charges fees of £5,000. That is inflexible and a major disincentive to the kind of people whose educational horizons the OU has raised during the past four decades.
	My second comment concerns graduate-level education. There are immediate concerns, as already mentioned, about whether UK students are being unduly deterred by lack of funding. But there is a structural issue, too. We should welcome the trend to concentrate PhD-level education and encourage alliances and clustering of university departments. In doing this, it is important to reassure academics that this need not entail an equal concentration of research, especially in the humanities. Many who teach in the best American liberal arts colleges are productive researchers and scholars, but if they have graduate students, those students are based in another university.
	Students aspiring to a PhD need more than just a good supervisor; they need to be in a graduate school where courses are offered over a wider range. Without this second component, newly minted British PhDs will not have the flexibility and range that is needed for their later careers.
	Overall, current disruptive changes could foreclose rather than facilitate the needed restructuring. Once quality falls, it will be nearly impossible to restore, especially because we are networked in a worldwide system where other countries are strengthening their grip. To ensure that our universities continue to be a magnet for talented students and faculty, the Government must at least be mindful of these concerns.

The Lord Bishop of Ripon and Leeds: My Lords, I, too, am grateful to the noble Lord, Lord Wills, for initiating this debate and keeping before us the issue of how best to encourage that depth of understanding that is key to the humanities. Many Members of your Lordships' House will have been involved yesterday in Remembrance Sunday events, which will-or should-have posed the question of how we live peaceably and with dignity in a world of diversity. That needs a deep sense in our society of subjects such as history, philosophy, sociology and indeed theological and religious studies. What will the Government do to encourage studies to maintain and develop that understanding of a world of diversity that has been at the heart of the development of a liberal society?
	We cannot simply assume that liberal values will continue to be accepted in our society. Your Lordships have spent the last five hours or so debating ethical issues around sexual abuse, financial integrity and journalistic honesty-all marks of how a liberal society is to live with the illiberal and the selfish. That all needs an understanding of society which is heavily dependent on the culture encouraged in HE. One example: Islamic studies used to be viewed as a strategically important and vulnerable subject. Now that category seems to be reserved for subjects deemed to be economically important. Will the Government renew this category and understanding with a view to including humanities subjects which, as their name suggests, deal with relationships between human beings?
	A crucial aim of HE must be to encourage the development of all students as responsible, ethical human beings. There needs to be a stress on values which are not dominated by market forces. The HE sector, including the Church of England cathedral group of universities, has always endeavoured to develop this. Will the Minister affirm that understanding of the development of all students as responsible, ethical human beings? Will she pledge the Government's support for those aims, for both undergraduate and research programmes?

Baroness Warwick of Undercliffe: My Lords, I, too, thank my noble friend for introducing this timely debate. The new and substantial reforms to university funding have had some unpredicted effects on applications and admissions. We do not yet have reliable data on enrolments but we know that application figures, though down by just over 7%, have been less badly affected by higher fees than many predicted. In particular, it is reassuring to note that applications from students from the lowest participation backgrounds have decreased by less than those from students from higher participation groups.
	However, within this, I am concerned about the decrease in applications for some languages, arts and design, and social studies courses. Some of these subjects have recorded decreases in applications of between 16% and 20%. We need to pay attention to this but it is also worth taking the long view. Subjects in arts and design have experienced considerable growth over the past few years: a 36% increase between 2006 and 2011. Although that growth has slowed and has been less than that for STEM subjects during the same period, the trend has been positive. Unfortunately, languages have been in longer-term decline. The other worrying feature has been the fall-off in applications from mature students. If this experience is repeated in future years, we may have a serious problem. Encouraging older students into higher education is increasingly important to the economy. A huge amount of progress has been made in the past decade and we cannot afford to see it reversed.
	The change in the profile of applicants this year may explain some of the variations in subject choice, so we will need to distinguish between short-term effects-because this is the first year of a new system-and longer-term trends. For instance, there is widespread concern about the combined effects of higher fees at undergraduate level and an inadequate supply of commercial loan funding on the take-up of postgraduate education. There is concern, too, about the way in which government funding and student number control policies, combined with an increasing concentration of research funding, could lead to increased stratification of the university system. I urge the Government to tread cautiously. The past year has created huge challenges for university leaders. Very strong institutions from all parts of the sector have found it extremely difficult to operate in circumstances where several sets of goalposts have shifted simultaneously.
	This instability in the English system has added to concerns about simultaneous disruption of international activities. This is one of a number of areas where our universities excel. Their international reach is phenomenal. Much has been said about the economic value of their international activities, but I think that we in this House understand that the internationalisation of universities is as much about the character of their teaching and research, and the quality of the educational experience enjoyed by their students, as it is about their considerable export earnings. The Government have been urged by not one, not two but three separate Select Committees to take students out of net migration targets. When will the Government respond to these calls?
	I will make a final point on research funding. What will the Government do to ensure that the European research and innovation budget is protected in the forthcoming EU budget negotiations, especially since EU funding currently constitutes 10% of national research investment? As David Miliband recently put it, we have to get the EU budget,
	"out of supporting cows, sheep and goats and into supporting skills, universities, and innovation".
	If the Government do not back our universities, other Governments in other parts of the world will help their own universities fill the very big gap that we will leave.

Lord Smith of Clifton: My Lords, the debate could not be better timed and I congratulate the noble Lord, Lord Wills, on initiating it. The introduction by the coalition of a threefold increase in university tuition fees has led, as other noble Lords said, to a plummeting of applications by part-time students. Yesterday, the Observer reported significant falls in applications among middle-class families, citing the well heeled parliamentary constituencies of Banbury, Tatton and Witney as examples. In a three-page article in the same issue, the Observer analysed the prospects for the survival of the university system as we know it, in view of the exponential explosion in the provision of online distance learning courses. Students will be increasingly attracted by such lower-cost courses. Following the Browne report, the coalition hiked up fees to encourage the privatisation of higher education and make it much more market led, which will continue to have enormous reverberations.
	Tomorrow, as has been mentioned, the newly formed Council for the Defence of British Universities holds its inaugural meeting. Like many of your Lordships, I am a founding member and declare my interest. The CDBU has been set up to monitor the effects of coalition policy on the HE sector, many of which seem deleterious. The STEM subjects need to be encouraged and the Government have provided funds for them-but leaving the arts, social sciences, law and particularly the performing and plastic arts to fend for themselves in a world of untrammelled market forces will lead to an imbalance among the academic disciplines that will certainly change the system of higher education. It is these trends that the CDBU will keep under continuous review.
	Of course, change is inevitable and diversity is to be welcomed, but it needs to come about within a coherent framework that necessarily involves the Government. On a number of occasions in the House, I have advocated the introduction of a three-tier scheme for higher education along the lines pioneered by Clark Kerr in California. I was very gratified to see that it had been endorsed and elaborated on by the noble lord, Lord Rees of Ludlow. It is gratifying to have such an authoritative recommendation from so eminent a source.
	At a time of austerity and scarce resources, it is imperative that this country has a robust system of higher education. Since the Robbins report of 1963, no wide-scale review has been undertaken. A successor to Robbins is long overdue. Leaving the system to market forces will lead to gaps in the range of disciplines in Britain. National criteria need to be devised and deployed of the kind used by the noble Lord, Lord Oxburgh, in his planned reduction of the provision of geology in the 1980s.
	Finally, I turn to the possible unintended consequences of the recent Finch report on open access to the results of research and scholarship. The mandatory dissemination of the results of research and scholarship funded by UK taxpayers will of course offer free research and development to overseas competitors.
	Secondly, the so-called article processing charge being levied by academic publishers on contributors will seriously handicap younger academics who can ill afford the upfront charges of up to $3,000. Those and other reservations have been raised by learned societies such as the Political Studies Association, of which I declare an interest as a vice-president. Will Her Majesty's Government address those worrying concerns, which impact particularly on the arts and social sciences?
	In winding, I ask: does the coalition propose to appoint a Robbins-type inquiry; will Her Majesty's Government get a resolution to the contradictory policies of the Department for Business, Industry and Skills and the Home Office over student visas; and will they look carefully at the deleterious effects of the Finch report?

Viscount Hanworth: My Lords, reform is a weasel word. It commonly denotes the removal of abuses and malpractices, the enhancement of efficiency, the defeat of vested interests and much else besides. Successive Governments have used the word as an accompaniment of coercive attempts to gain power and to exercise control over organisations or groups of people who serve specialised functions in society and who depend on government funding.
	The university sector is faced at present with major reforms that entail an attack on the professional status of academics and a belittlement of their capabilities. Under such specious slogans as "students at the heart of the system" and "putting students in the driving seat", proposals are being made to accompany a radical change in the way that universities are financed.
	Those who will have to pay more for their education are being mollified by the thought that universities will be forced to improve the quality of their provision in accordance with the increased fees. The ideological imperative of the reforms is ostensibly to create a market in higher education in which students as consumers will face universities as producers in a competitive struggle. A concealed objective is that of reinforcing the privileges of a select group of universities, described as the top institutions, which also serve the educational needs of a social elite. Universities of the middle ground will be hollowed out and, at the lower end, entrants will be allowed to participate in the competition.
	Successive reforms by Governments have imposed a heavy burden of quality control and performance assessment on university lecturers. The burden has accumulated. Nowadays, vastly inflated parallel organisations exist within universities that instruct lecturers how to conduct their business, that investigate their work via peer appraisals and student assessments and that demand detailed documentation of the taught courses in respect of their objectives, their content and their methods.
	One might reasonably expect there to be strong resistance on the part of the majority of the academics to those impositions, as well as a modicum of success in resisting them. However, academics have lost the power to resist and, nowadays, they are outnumbered by administrators. The loss of power has been hastened by the fact that a declining proportion of academic staff is native to the UK. For many years, our universities have failed to generate native academics to succeed those who retire. The new recruits lack the sense of ownership that one would expect of native British academics; and there is an acute sense of impermanency in many departments, where the annual rates of staff turnover can be as high as 30 per cent.
	The proposals that have been set forth in the White Paper, Students at the Heart of the System, can only exacerbate the problems that I am describing. It is proposed to enhance students' experiences by making universities more responsive to their demands and complaints. Student appraisal of individual courses is to play a major role, as is the National Student Survey, which records the overall degree of student satisfaction with the departments in which they have been taught. We are told that there will be a new focus on student charters, student feedback and graduate outcomes. By graduate outcomes is meant the success of graduates in achieving well remunerated employment; and the competitive evaluation of comparable courses will depend crucially on this.
	The pursuit of student satisfaction has already led to an inordinate grade inflation in higher education; and this development is subverting the didactic process. An ignorance of the real criteria of excellence is of no benefit to the student.
	In the commercially competitive environment that is envisaged by the White Paper, in which university administrators are in control of the academic processes, the opinions and demands of students are liable to dictate what is taught and how it is taught. Indeed, this has already happened and to the severe detriment of quality.

Baroness Howells of St Davids: My Lords, I thank the noble Lord, Lord Wills, for raising this crucial debate at this time, and for his insight into the subject.
	I declare my interest as the Chancellor of the University of Bedfordshire, to which I shall devote my few minutes. Bedfordshire is a successful modern university where 90% of our students are in work or further study six months after graduation. The university prioritises a first-rate student experience and, despite significant changes to student number control, which have hit many universities, the University of Bedfordshire has achieved its student number control this year.
	There is a risk that the increased cost to the individual of undergraduate education will reduce the likelihood of advanced study and research, as graduates move quickly to employment to start repayments to their loans. The number of UK students undertaking research in areas that are not likely to have a direct impact for potential sponsors will therefore reduce further than currently.
	The university continues to offer scholarships for postgraduate study and research to offset that impact and to support the development of the next generation of researchers and research-skilled individuals in those areas. Despite the steep gradients in the HE landscape introduced in the recent reforms, the University of Bedfordshire continues in its upward progress in education, research in the arts, humanities and fundamental sciences. Although the winds have been cold and cutting, we have weathered the immediate storms in student recruitment and in reduced funding for research, especially in the arts and humanities.
	We are far from complacent, as each new term introduces yet more unforeseen consequences with which we have to deal. The creative industries, which link the arts and the sciences and where the university is recognised as a leader both nationally and internationally, are a major contributor to the UK's GDP. The university finds itself in a position where the funding for education and research in this area is being trimmed excessively. We fear that if current trends continue, the viability of our portfolio in the creative industries will be under threat. Inevitably, this will lead to the likelihood that the UK will no longer be the global leader in international business. I ask the Minister if that is the Government's intention.
	Even the Russell group has said that the university access plan will fail. Sir Keith, a member of the newly formed council already mentioned, has said that it is right that safeguards be placed on the spending of public money. He continued:
	"The degree of audit and accountability now demanded is excessive, inefficient and hugely wasteful of time and resources".
	These demands, he claimed, will grossly distort the very purpose of the university and will undermine the capacity of universities to develop the intellectual and critical capacities of future generations. He begged the Government to sit up and take notice before it is too late. I urge the Government to consider the students of tomorrow.

Lord Stevenson of Balmacara: My Lords, I thank my noble friend Lord Wills for securing this debate and all noble Lords for the excellent contributions they have made to this important topic. I complained a couple of weeks ago that there were too few opportunities to debate HE policy in your Lordships' House. As welcome as this debate is tonight, it has confirmed my feeling that we need still more opportunities in the continuing absence of the long-promised but never-arriving higher education Bill. I will touch on a few of the many issues raised by others this evening, and look forward to hearing the responses from the Minister.
	First, on demand, as mentioned by my noble friend Lady Warwick the overall drop in applications and admissions for undergraduate study this year is about 14%, according to UCAS figures. This is a significant drop in itself and of course in terms of future funding of higher education institutions over the next few years, it will be devastating. In terms of future demand, a recent poll by Ipsos MORI suggests that fear of debt may be deterring up to one-third of 11 to16 year-olds from applying to university in the future. This raises a general concern that students' decisions to invest in their own future are being affected by increased financial commitments and potential debt-burdens. There are also worrying trends for part-time and mature students. Does the Minister recognise these concerns?
	On investment in higher education, as the noble Baroness, Lady Sharp, said, the UK now sits near the bottom of the OECD countries when looking at the amount that the state invests in higher education. Looking at public expenditure on higher education alone, the UK's investment of 0.56% of GDP is one of the lowest in the OECD. Our universities are experiencing cuts while other nations are investing. The UK spends about $16,333 per student, well below the USA at $29,200, Canada at $20,000, and Switzerland at $21,000. Surely new and more innovative ways of funding university places may be required. The recent review of the noble Lord, Lord Heseltine, recognised this. He called for Government to provide incentives for employers to employ more skilled graduates. Can the Minister tell us what the Government intend to do about this recommendation?
	On postgraduate study, the recent report by the Higher Education Commission on postgraduate education has argued that progression to postgraduate study is threatened by rising financial pressures on students, and called for a system of state-backed loans for postgraduate study. These points were also made by Alan Milburn in his recent report on social mobility and access to higher education. Does the Minister recognise these issues, and will she consider implementing changes?
	On immigration policy, several noble Lords have mentioned the problems that have been caused, particularly the impression being given that the UK does not welcome overseas students. As we have heard, excellent international students are indispensable for world-class universities and a thriving society, culture and economy. There is fierce global competition for the best academic talent. At the moment, the UK is the second most popular destination in the world for both international students and PhD students, behind only the USA. Lord Heseltine in his recent growth review also argued for a review of immigration arrangements to provide,
	"a welcoming environment for foreign students because this is an important market in which the UK excels".
	What steps will the Government be taking to implement this recommendation?
	Finally, I turn to private providers-raised I think by the noble Baroness, Lady Morris. These providers remain remarkably unscathed and unregulated as a result of the failure to include a higher education Bill in the current legislative programme. Is this remedy going to be brought forward? There is really a concern here. At the same time, we gather that the Treasury is proposing that a VAT exemption be granted for some of the services provided by these private providers. Can the Minister explain what justification exists for offering for-profit providers with this additional benefit at taxpayers' expense?

Baroness Garden of Frognal: My Lords, I, too, am grateful to the noble Lord, Lord Wills, for this opportunity to consider the enormous contribution that our higher education sector makes to national life. Our universities are a tremendous national asset, which we need to sustain and to grow. BIS is developing a long-term education export strategy as part of its broader work on an industrial strategy. This will recognise the significance and contribution of the HE sector and be published next year, while 2012 has certainly been a significant year for higher education as the Government's reforms take effect. These are fundamental reforms designed to achieve a well funded, diverse and responsive sector that values both research and teaching but in which institutions focus on what they do best and are able to attract funding based on excellence within their field.
	Inevitably, there is some stress and uncertainty accompanying change on this scale but the higher education system is mature, well managed and financially well prepared to meet the challenges ahead. The sector has an income of more than £22.7 billion per annum and, last week, the Higher Education Funding Council for England published a report on the English sector's finances, which assessed them as sound with a likely continuation of positive cash in-flows and healthy cash-backed reserves. The OECD has said that our reforms are an exemplary model of how to reform higher education. The research councils continue to invest in the UK's world-leading research base, which of course includes the arts. Just last week, the Chancellor announced an additional £20 million for synthetic biology.
	The new higher education funding regime does not mean that the Government fail to support certain subjects. We are told that the shift from grants to fees and loans somehow penalises the arts and humanities or penalises expensive science courses. In fact, it is a scrupulously neutral policy. Under the arrangements we have put in place it is the source of university funding that will change, not the overall amount. What will dictate whether courses run will be their quality and the efficacy of the institution in making them attractive to students. I well understand that there may be concerns about the fate of particular courses but the noble Lord, Lord Wills, and others can rest assured that Ministers and the funding council will continue to monitor the position and will keep strategically important subjects under review. Arts and humanities can lead to rewarding and fulfilling careers. The British Academy reports that admission figures for 2012 show the humanities holding up, with around half of all applicants. Indeed, Bristol University has announced an expansion in humanities on the back of the reforms.
	I listened with interest to what the right reverend Prelate the Bishop of Ripon and Leeds said about diversity and social understanding, and about producing responsible and ethical students. I think we would all support that, but it would be down to the autonomous universities as to how it was implemented. We must remember that the system the Government have introduced is more progressive. The noble Baroness, Lady Howells, expressed concern about access for all students and the noble Lord, Lord Stevenson, expressed concern about adults being put off studying. However, repayments will be made only when graduates can afford to do so and are earning a good salary. We have been clear that university study has intrinsic value, irrespective of any economic or financial potential. We heard powerful inputs from my noble friend Lady Sharp and the noble Lord, Lord Rees, in support of the intrinsic value of universities.
	The coalition has protected the budget for science and research. The ring-fenced settlement for 2011-15 extends further than its predecessor as, for the first time, it covers all core publicly funded research activity, including specific support for knowledge exchange. Protecting resource funding inside the ring-fence is a commitment to maintaining activity even in tough times. The research base is among our greatest national assets and vital for our future. The UK relies on a strong base of scientific skills; science and technology underpin much of our economic growth and universities are integral to helping to stimulate growth through dynamic research.
	Two weeks ago, seven new university and business research partnerships in sectors including life sciences, energy efficiency and advanced manufacturing were announced by the Minister for Universities and Science. I entirely take the point made by the noble Lord, Lord Wills, that one cannot predict which of these branches of science will result in fruitful outcomes but there has to be funding for blue-skies thinking and research. The new projects double the number of successful projects supported by the UK Research Partnership Investment Fund to 14, covering the whole of the UK and leveraging a total of more than £600 million of private support. Noble Lords expressed interest in having private money coming into university funding. When fully allocated, the scheme will secure more than £1 billion of new support for research from government, industry and charities.
	Turning to some specific points that have been raised in the debate, I recognise the concerns of the noble Lord, Lord Wills, about impact. However, we think that there must be some mechanism for assessing impact. For the first time, the RIF for 2014 will include recognition of past impact and explicit assessment of recent impact, but we must get that balance right in measuring the value of universities.
	My noble friends Lady Morris and Lord Smith, the noble Baroness, Lady Warwick, and the noble Lord, Lord Stevenson, all expressed concerns about visas and the messages that we are sending to overseas students-that they are not welcome in this country. I assure noble Lords that we are looking closely at simplifying the visa system and trying to ensure that no legitimate students are denied entry and are indeed made most welcome to the country. The difficulty is in trying to deny the false students-those who do not really come here to study-but somehow that message must go out: that the universities in this country are open for business and warmly welcome students from overseas.
	My noble friend Lady Morris mentioned her concerns about the University of Bolton in particular. Overall applications for HE were down slightly this autumn, but this is an atypical year. It has been affected by a demographic dip as well as the reforms. It means that some institutions did not have as many students, and therefore for some their income stream was affected. We are encouraged that applications so far for 2013-14 are up. We hope this will be a temporary situation for my noble friend's university.
	My noble friend Lady Sharp mentioned the Dearing report on the four core purposes. Indeed, they are still very valid today, as is so much of Lord Dearing's thinking. She and my noble friend Lord Smith also referred to the launch of the Council for the Defence of British Universities. We shall be watching with interest the thoughts that come out of that initiative.
	The noble Lord, Lord Rees, spoke eloquently about the merits of the US system and the clustering of departments, but I would put the case for the merits of the university system here in the UK. Our institutions are autonomous and are free to determine their own admission arrangements and choose their own mission. There are also exciting times ahead with the expansion of distance learning and online learning, which the Government will consider with keen interest. We note the tremendous work of the Open University in expanding horizons and access for so many people in this country.
	The noble Baroness, Lady Warwick, mentioned student visas and international reach. Once again, we will do our level best to ensure that research and innovation budgets are protected because our links with the EU are valuable.
	My noble friend Lord Smith mentioned open access. The Government have made £10 million available to pump-prime the formation of publication funds to enable institutions to act on the Government's open access policy. That is again something we shall be watching.
	The noble Viscount, Lord Hanworth, mentioned that the administrative burden on universities exacerbates the difficulties for students. The Government make no apology for asking institutions to focus on an improved student experience and on providing information to help students make informed life-changing decisions. Once again, one needs to get the balance right. The noble Viscount also mentioned the turnover of staff, which one would want to discourage in an academic institution where continuity can often be an enormous benefit. We welcome international academics to this country in order to ensure that students can profit from the most expert and skilled people in each of our institutions.
	The noble Baroness, Lady Howells, mentioned her chancellorship of the University of Bedfordshire, and we note the points she made about it and its success.
	The noble Lord, Lord Stevenson, raised a number of questions, on which I cannot go into detail at this time, including about the mix of private providers. We feel that it is important that our higher education sector should have a mix of private and public funding in order to ensure that it is as healthy as it can be.
	Any new funding system will change behaviour, both of students and of institutions. What we are seeing is a paradigm shift. The impact of such a dramatic change for the sector will be felt both immediately and in the longer term as students become more discerning consumers of higher education, as institutions develop a greater diversity of funding streams and develop a renewed focus on high-quality teaching so that it has the same prestige as research.
	I thank all noble Lords who have taken part in this thought-provoking and stimulating debate. If in the short time I had, I have not covered all the questions raised, I undertake to write to noble Lords. Our reforms are intended to make our world-class system stronger. As noble Lords have made clear, we must ensure that our universities continue to encourage reflective inquiry, as the noble Lord, Lord Rees, mentioned in his recent pamphlet; they must encourage thinking the unthinkable, intellectual curiosity and cutting-edge research. The Government are determined that our universities' international reputation will be maintained and enhanced.

Financial Services Bill
	 — 
	Report (2nd Day) (Continued)

Amendment 28A
	 Moved by Lord Sharkey
	28A: Clause 6, page 22, line 13, at end insert-
	"(3) In order to facilitate the objective set out in subsection (1), the FCA must require each holder of a banking licence to publish relevant data each quarter, by post code, including the total amount of lending to small and medium sized enterprises."

Lord Sharkey: My Lords, this amendment has two purposes. The first is to make sure that relevant data on each bank's performance are in the public domain. This will make it possible to have an informed debate on whether the banks are competing effectively in the interests of consumers, as the FCA is required to promote. At the moment, all we have is aggregated and regional data. We do not know to what extent, or even whether, the banks are effectively competing, or indeed whether they are properly engaged in all the areas where we might want to see effective competition.
	In a more general sense, increasing the amount of data on bank activity in the public domain is a very good thing. We need banks to change their practices, and their culture and transparency is a critical part of doing exactly that. We need to be able to see the changes in both practice and culture and not have to rely just on assertions that changes are taking place. For example, we need to see evidence that, as it says in the coalition agreement, the banking system serves businesses and not the other way round. Exactly the same applies to ordinary customers, too.
	The second purpose is to focus attention on banks' lending to SMEs. Your Lordships will have heard many times about the absolutely critical role of SMEs in our economy, and of their role as key providers of jobs. The importance is hard to exaggerate. Our economic recovery and our enduring economic health depend on the performance of our SMEs, as it always has. The ONS data for July 2011 show that SMEs provide 60% of all jobs in the private sector and generate 49% of private sector turnover. The BIS economics paper of 16 January this year re-emphasises the importance of SMEs to the economy, but goes on to say that,
	"there are a number of structural market failures restricting some viable SMEs from accessing finance".
	The report notes that access to debt finance is now harder than before the credit crunch.
	In 2007-08, 90% of SMEs seeking finance obtained it. This figure now stands at 74%-and, crucially, the total stock of lending to SMEs is in decline, especially to those with a turnover of less than £1 million. To place this in a long-term context, the Breeden report of March this year estimates that by 2016, if things go on as they are, there will be a shortfall of between £26 billion and £59 billion in the finance needed by SMEs for working capital and growth. The Government are very clearly alive to these problems and hope, as we all do, that the Funding for Lending scheme will succeed in making a real difference in funding for SMEs.
	The data provided by the banks on lending to SMEs are provided on an aggregated basis. That means there is no information to allow assessment of performance and suggestion of improvement, or to show which banks are performing better than others or, critically, which are effectively absent from which areas. We do not know which banks are supporting-and to what extent-the third sector in taking advantage of the new rights conferred under the Localism Act. To do all this properly, we need access to disaggregated data and data on a postcode level so we can see clearly which banks are doing what and where with the vital SMEs. We need this data so we can identify in detail the areas of market failure and therefore of competitive failure, which the Government acknowledge do exist.
	The SMEs are vital to the economy and to jobs. Funding SMEs is vital to their performance. Underfunding, which is the current situation, threatens our economic recovery and the creation of jobs. There is evidence of market failure and of a failure of competition. The amendment will allow us to identify that failure and will provide us with the information to help put right that failure. It will help promote effective competition, as the Bill requires the FCA to do, and it will help fulfil the coalition agreement's pledge to develop effective proposals to ensure the flow of credit to viable SMEs.
	Of course, I hope that my noble friend will agree to this amendment, but it has occurred to me that he may have one or two reservations about doing so. In particular, he may worry that the amendment imposes too onerous a burden on the banks. He may worry that the publication of a bank's performance may somehow be prejudicial to its commercial activities. I hope that I can give him some comfort on both points.
	The burden that this amendment imposes on the banks is not onerous. The FCA may decide, in general, what data it considers to be relevant. I am sure that, in general, it will take into account the burdens imposed. Specifically, publishing the disaggregated and postcode-level data on lending to SMEs imposes, if anything, a trivial additional burden on the banks. The BBA already publishes aggregated data on a quarterly basis, which includes lending to SMEs on a regional basis. By definition, disaggregated data exist before they can be aggregated. Surely, the banks know the postcodes of their customers-except, it appears, for some HSBC Cayman Island accounts.
	For the worry that publication of disaggregated data may somehow be prejudicial to the bank's commercial activities, it is hard to make a convincing case. Exactly like all other large, competitive organisations, the banks will already have detailed research on what their competitors are up to with SMEs-or, if they do not, they are even less competent and less competitive than we might have supposed. The amendment simply puts that information into the public domain.
	The amendment is not onerous. It simply requires more transparency from the banks in the interest of more effective competition. It requires, in particular, more transparency about the banks' support for the SME sector. We would all benefit from that, and people and businesses in deprived communities would benefit greatly. Even the banks would benefit from a move to greater transparency.
	I very much hope that the Minister will be able to agree to this amendment or to assure the House that at Third Reading the Government will bring forward something equivalent. I beg to move.

Lord Newby: My Lords, it might be to the benefit of the House if I give the Government's response to this amendment now. In responding to an earlier amendment, I said that the FCA would necessarily need to gather data from industry to understand what existing provision there was and whether it met the needs. But we need to make proper provision for any data requirements. Normally, that is in the FCA's rulebook, or covered by commitments made by industry to provide and publish relevant information, working through trade bodies as appropriate. Ideally, we would not need to legislate to make that happen.
	Let me be clear on our position: the Government agree that we should be able to see where provision is lacking, particularly where there are areas where bank lending is simply not being offered or getting through. Getting this data in the public domain will help to crystallise the problem, and what should be done about it by industry and by the Government if necessary.
	I can confirm today that we will be working with industry, through the British Bankers' Association and other interested parties, to get a commitment from the banks that they will publish more granular data. This will build on the work that industry is already doing and will deliver publication of the kind of data that all sides of the House clearly want to see. The members of the business lending taskforce already publish subregional aggregated lending data on an annual basis. While this is a good first step, I think we all agree that it is not enough. Therefore, we will work with industry to collate and publish lending data that is disaggregated by institution and presented on a postcode-level basis.
	The Government will take this forward as an urgent and pressing matter. In reiterating our commitment to make progress in this area, I confirm that should our negotiations with industry fail to deliver-I sincerely hope that that does not happen-the Government will introduce amendments to the Banking Reform Bill along the lines proposed in the amendment we are debating today, to ensure that the data, in disaggregated and postcode-specific form, are published.
	I hope that this reassures noble Lords that the Government share their commitment to making progress in this area and that the noble Lord will be prepared to withdraw his amendment in light of this commitment.

The Lord Bishop of Durham: My Lords, my name is down on the amendment. I thank the noble Lord, Lord Newby, for that most helpful intervention, which essentially satisfies what I hoped for with the amendment. I also thank the Minister and other noble Lords for their kind remarks earlier.
	It is particularly important that this information is available not only for this House and the public but also for the FCA itself in view of the very welcome earlier amendment about the access to finance in areas of social deprivation. For that to be effective, the FCA itself will require these kinds of data. Having them available is not only useful to us but ensures that the FCA's regulatory obligation can be fulfilled and that it will feel an obligation to make sure it is fulfilled. It prevents regulatory comfort, which is often as much a danger as regulatory capture. The noble Baroness, Lady Hayter, spoke in those terms on an earlier amendment.
	I am particularly conscious of this in the area where I live-in the smaller towns of the north-east, the ex-pit towns and pit villages and de-industrialised areas-where access to finance for SMEs, especially the very small SMEs, is almost non-existent. This will reveal that kind of problem extremely clearly. Recently, through a social enterprise, we were able to support someone who had been seeking £200 for 18 months in order to start his own painting and decorating business. Such a small amount has enabled him to become self-sufficient, with an order book full until next May. It is that kind of thing that can make a significant difference in the small economies of the more rural areas of my diocese and other places like it. I thank the noble Lord again for the assurance that he has given the House and we look forward to seeing the results.

Lord Flight: My Lords, perhaps I may just add a brief comment. I had a conversation this morning with the entrepreneur Luke Johnson. He made a point to me that resonated strongly. Would it not be a good idea if we could organise key entrepreneurs to take up the challenge of different towns around the country to give a lead in entrepreneurial rejuvenation? I can certainly think of examples, particularly Swindon in the past, where that sort of principle has worked extremely well. Then the SME lending makes more sense.

Baroness Kramer: I join the strong voices that we have heard so far on the amendment and again thank the Minister for the commitment that he has made on behalf of the Government to meet the essential needs that the amendment sought to fill. Amendment 27, which we discussed earlier, in effect wills the end. Amendment 28A in effect wills the means. Providing the database that tells us where the market is failing means that not just the regulator but also many other parties can begin to step in to take action to fill that gap.
	Many people know that this has the nickname of the CRA amendment because the focus on making sure that data are exposed comes out of the Community Reinvestment Act in the United States. It started out as a civil rights measure but has ended up exposing vacuums in lending across that country and action has been taken that follows on. I suspect it will be the work of many years, quite frankly, to help to build the appropriate financial institutions to provide these services. It may be that it is not necessarily the major banks themselves. It may be the major banks working in partnership with community development institutions, social entrepreneurs, charities and local communities. There may be many varieties of response. In the United States we have seen that response happen and we need that response here.
	We have been in the frustrating situation since the crisis of 2007 of looking at the small businesses that are the backbone of any country's economy and recognising that they have not been able to expand at their potential rate because of the lack of credit availability. That is merely one example. Again, many individuals turn to payday lenders and others with absolutely extortionate interest rates and borrow just to be able to function financially. Frankly, if you can repay a payday lender, you can certainly repay a properly priced loan. This proposal lets us address that.
	I wanted to make two comments on the CRA, reflecting communications that I have had with the United States over the past week. The first is an e-mail from John Taylor, president and CEO of the National Community Reinvestment Coalition. In his e-mail of last week, attempting to explain to me how this programme had worked there, he said:
	"The success of the CRA cannot be overstated. Where once lenders feared to tread, they now make loans. CRA requires that such loans be made in a safe and sound manner, which is why so few CRA mortgage loans were involved in the recent widespread fiasco in the US mortgage industry".
	It is exactly that which we seek to come out of this-organisations and arrangements that are capable of lending into these areas where the big banks have chosen not to tread. They can do it in a safe and sound manner, which many general lenders might decide is beyond their particular capabilities-but at least we can get institutions that can fill the gap.
	My noble friend Lord Sharkey talked about the importance of public awareness and the ability to put data into the public arena. I am quoting now from the manual of the National Community Reinvestment Coalition from 2007, which says:
	"If banks and regulators are the only stakeholders involved in a secretive or mysterious CRA process, chances increase that CRA exams and merger applications become rubber stamps without imposing meaningful obligations to serve the community. On the other hand, if the general public is actively engaged in providing thoughtful and penetrating insights and comments on bank performance, CRA becomes a rigorous process, holding banks accountable to serving community needs. Consequently, bank lending, investing, and services increase for low- and moderate-income communities".
	That, I would argue, is what we all wish to see and seek to achieve with this amendment and with the Government's commitment that stands in its stead.

Baroness Hayter of Kentish Town: My Lords, I am delighted, nay honoured, to see my name alongside that of the future Archbishop of Canterbury, the right reverend Prelate the Bishop of Durham. If his contribution today is anything to go by, we can look forward to a thoughtful, progressive and determined ministry, which will serve this House and this country well. Like all my colleagues, I warmly welcome his appointment and congratulate the right reverend Prelate. I wish him well in the challenges ahead, which may be a little more demanding than getting an amendment accepted by the Government.
	As has been said, there is a real lack of transparency in the financial sector, which is a key problem, given our reliance on competition to make the market work. Without information, choices of customers or of policy-makers are hampered. We know a few things but not enough; we know that one-third of a million small and medium size businesses could not get access to finance from mainstream banks in 2011. Indeed, only half of the young, fast-growing, small businesses had their loans fully met last year compared with 90% in 2007, so it is no wonder that our economy has stalled. But regulators and others cannot take action until we have these better, more precise and locally based data. Banks have to made to be more open about what and where they are lending. They are too important to work in the shadow. I am delighted that the Government have accepted this amendment, although I note that the Financial Services (Banking Reform) Bill is potentially growing larger by the amendment. I think that this is the third reference today to something that may be in the Bill. Nevertheless, we welcome the Government's move on this matter.

Lord Sharkey: I would like to thank all noble Lords who have spoken in this brief debate, particularly my noble friend Lord Newby for his commitment to the publication of disaggregated, postcode-level data in this important area and also, in a way, for helping us to look forward to a slightly more varied Financial Services (Banking Reform) Bill than we might have expected in the new year.
	Last week it was the noble Baroness, Lady Noakes, who told us what the correct technical response was to this kind of government commitment: she said it was "bingo". I would like to echo that. I finish by saying that, although I hope we will be able to get a satisfactory voluntary agreement on this, I am enormously encouraged by the Government's firm commitment to legislate should this not be the case. I beg leave to withdraw the amendment.
	Amendment 28A withdrawn.
	Amendment 29
	 Moved by Lord Newby
	29: Clause 6, page 23, line 32, leave out "or"

Lord Newby: These amendments relate to the matter raised by the noble Lord, Lord Davies of Oldham, during earlier discussions of the FCA's objectives. At the time, the noble Lord made the point that it seemed odd that the new section in this Bill setting out a number of indicative and non-exhaustive matters that may be considered to fall within the definition of financial crime should not include a matter of grave concern; namely, the financing of terrorism. My noble friend Lord Sassoon wholeheartedly agreed at the time that this was an odd state of affairs and promised to return to the matter on Report. That is why I am today tabling these two amendments, which have the effect of adding the financing of terrorism to subsection (3) of new Section 1H in Clause 6. This brings the provision very much into the 21st century and reflects the reality that we need our regulators to be ever more vigilant and do what they can to reduce the extent to which the financial system and firms within it can be used to finance terrorism.
	I should stress that the list describing what may be considered to constitute financial crime is indicative and non-exhaustive and that there is no question that the FSA at present does not have the mandate to act in this space. It absolutely does. However, I agree with the noble Lord that this is very much a change worth making. I beg to move.

Lord Eatwell: My Lords, I am amazed at the inability of the Treasury to get this one right. My noble friend Lord Davies of Oldham pointed out that the definitions, even in this indicative list of financial crimes, do not accord with our international obligations to the Financial Action Task Force. The FATF defines the crucial area of international financial crime as money laundering, the financing of terrorism, with which the Government have now caught up, and the financing of the proliferation of weapons of mass destruction. Why are the Government not following the definition given in our international obligations? Why do they not consider including the financing of the proliferation of weapons of mass destruction-one of our key international obligations-as appropriate in the indicative list?

Lord Newby: My Lords, it is an indicative list. We have added to it on the basis of comments by the noble Lord, Lord Davies of Oldham. It is a non-exhaustive list and the question of weapons of mass destruction is already covered by the powers that we have. There can be no question but that the authorities will be bearing down very heavily if they think there is any question of the financing of weapons of mass destruction.
	Amendment 29 agreed.
	Amendment 30
	 Moved by Lord Newby
	30: Clause 6, page 23, line 33, at end insert ", or
	(d) the financing of terrorism."
	Amendment 30 agreed.
	Amendment 31 not moved.
	Amendment 31A not moved.
	Amendment 32
	 Moved by Lord Newby
	32: Clause 6, page 25, line 28, after "The" insert "FCA"

Lord Newby: My Lords, this group of amendments includes the government amendments which introduce a practitioner panel for the PRA. Government Amendments 32 to 36, 38, 39 and 64 introduce a standing practitioner panel for the PRA and make consequential amendments, for instance to make clear that there are now two practitioner panels-the PRA practitioner panel and the FCA practitioner panel.
	We have always recognised that robust consultation arrangements will be vital if the PRA is to regulate effectively. The approach as originally envisaged in the Bill was to have a high-level duty to consult, giving the PRA substantial flexibility as to how that consultation was carried out. To ensure accountability, that approach also required the PRA to report on its consultation arrangements.
	However, having listened to the arguments advanced by noble Lords, and in particular my noble friend Lady Noakes, I am persuaded that it is right that Parliament should set out more detail for the PRA about how it should go about that consultation. A standing practitioner panel will be well placed to monitor cumulative burdens of regulation and give advice to the PRA on an ongoing basis about the effectiveness of its co-ordination with the FCA.
	Of course, the Government expect that the PRA will consult much more widely and draw on the expertise of academics and others and the Bill does not take away from its power to do so. The new panel will be a useful addition to these arrangements, and I hope that these amendments meet the concerns that the noble Baroness raised at an earlier stage.
	I turn briefly to Amendment 37A, tabled by my noble friend Lord Flight. This would have a very similar effect to the government amendments except that it specifies that the FCA may appoint persons to the PRA's panel. The PRA panel is, of course, intended to give advice to the PRA about the best way to achieve its objectives, and, as such, it is right that the PRA should appoint people who it thinks are appropriate to the panel. The FCA's objectives and its expertise will be quite different and I do not think it is appropriate to have the FCA appointing people to the PRA practitioner panel.
	Overall, I think that the Government's proposed approach works well, and I am not persuaded that my noble friend's amendment improves upon it. I hope that, having seen the government amendments and heard my explanation, my noble friend will feel able to withdraw his amendment.

Lord Flight: My Lords, I am delighted to see that my Amendment 37A has effectively been reproduced by the Government. I apologise as I note that my amendment states, "The FCA may appoint", whereas it should refer to the PRA. I had taken the same wording for the PRA panel as for the FCA panel. It is healthy to have this structure, which will give people greater confidence to work with the PRA.

Baroness Hayter of Kentish Town: My Lords, as I said earlier today, it feels rather wrong to establish a PRA practitioner panel while excluding the views of those whose money and savings are at the heart of this industry and who depend on well regulated companies for their well-being. It also looks a bit too cosy a set-up between the regulator and the regulated community with no user-interest input. So, while we do not oppose these amendments, we do not think that they are a balanced response to the demand for the PRA to listen to those who work in financial services.
	We know from the Treasury Select Committee report on RBS of the silos that existed even within the FSA between its prudential and conduct sections. With the move to two regulators, physically a mile apart, there is an even bigger risk of such silos. This will not be helped by having two separate practitioner panels, so that even within the industry there will be a split between those addressing one regulator and those focused on the other. This will be the case as regards numerous issues, including, for example, benchmarking. The proposal is for LIBOR to be overseen by the FCA, and therefore have input from the FCA practitioner panel, but how it is working out in practice, the inputs to it and the use made of it will be the preoccupation of that part of the regulated community represented by the PRA practitioner panel. This proposal might therefore not be the best that the Government could have come up with. It was not the first choice of the industry and it would not have been our first choice.

Lord Newby: I am grateful to the noble Lord, Lord Flight, for his support for what we are seeking to achieve. I am not surprised by the comments of the noble Baroness, Lady Hayter. However, I hope that the House will feel able to support these amendments.
	Amendment 32 agreed.
	Amendments 33 to 36
	 Moved by Lord Newby
	33: Clause 6, page 25, line 30, after "the" insert "FCA"
	34: Clause 6, page 25, line 32, after third "the" insert "FCA"
	35: Clause 6, page 25, line 36, after second "the" insert "FCA"
	36: Clause 6, page 25, line 40, after second "the" insert "FCA"
	Amendments 33 to 36 agreed.
	Amendment 36A
	 Moved by Lord Flight
	36A: Clause 6, page 29, line 19, at end insert-
	"(c) seeking to sustain and encourage a competitive banking industry"

Lord Flight: My Lords, Amendments 36A and 36B are, to some extent, alternatives. I prefer Amendment 36A. As an objective for the PRA, it simply provides that the authority should be,
	"seeking to sustain and encourage a competitive banking industry".
	Part of financial stability is a competitive banking industry. A considerable element of the problems that the banking industry got into were, to my mind, the result of a cartel, and cartels always cause trouble. Therefore, if you want a safer banking industry, you want it to be reasonably competitive. As it stands today, the British banking industry is not particularly competitive. I have forgotten the precise figures, but four banks have a very substantial proportion of the total deposit base. I should declare an interest as the senior NED of Metro Bank, which is pioneering banking competition-with, I am glad to report, considerable success-as a straightforward traditional retail bank.
	However, I hope that the Government might at least consider Amendment 36A, which is not imposing anything particularly demanding on the PRA but which rightly includes that provision as one of the objectives in order to create a safer banking climate. Amendment 36B provides a wider definition of the banking objective of creating a competitive banking industry and, effectively, narrows the definition to the taking of deposits. It is based on the special PRA insurance objective.

Lord Newby: My Lords, I shall speak to the government amendments in this group and then I shall address the amendments in the name of my noble friend Lord Flight. In Committee we debated several amendments relating to whether the PRA should have a competition objective. Since then, the Government have considered further how the PRA should take account of competition considerations in its work, and decided to introduce provisions that, broadly speaking, require the PRA to be aware of the adverse effect that its actions can have on competition, and to minimise this wherever possible. In my view this strikes the right balance, ensuring that the PRA contributes to the creation of a more competitive environment in banking, but not to the detriment of safety and soundness. The PRA will have to explain how any rules it proposes to make are compatible with this new duty, as with its other regulatory principles.
	I hope the new requirement addresses concerns that the PRA's focus on safety and soundness will mean that it could impede competition within the financial services firms that it regulates or that it will ignore the impact of its actions or inactions on competition; for example, in setting barriers to entry for new entrants to the banking sector. In support of the new "have regard" requirement on the PRA, we are also introducing a requirement for the PRA's annual report to include how it has complied with this new duty.
	I turn to the amendments of my noble friend Lord Flight. As my noble friend Lord Sassoon stated in Committee, the FSA was required to balance multiple competing objectives and this led to a lack of institutional focus on prudential matters. Therefore, the Government remain firm on their decision that the PRA should have a single general objective against which it can be held to account by Parliament and the wider public. Giving the PRA a competition objective would also risk a new confusing overlap with the FCA's competition objective, given that all firms regulated by the PRA will also be regulated by the FCA. As I have said, in our view a new "have regard" requirement strikes the right balance, ensuring that the PRA will provide an appropriate level of regulatory support to the need to have a more competitive environment in banking, but not to the detriment of safety and soundness.
	Earlier in debates on this subject my noble friend Lord Flight suggested that there is a cartel operating in the banking sector. The OFT, rather than the FCA or indeed the PRA, has enforcement powers in relation to the prohibition of anticompetitive agreements, including cartels, in the Competition Act 1998. In addition, under the Enterprise Act 2002 it is a criminal offence for an individual to engage dishonestly in cartel activity and the Government are amending this provision to make prosecutions easier, via the Enterprise and Regulatory Reform Bill. If there is a cartel in any area of financial services then this is properly for the OFT to investigate as it has the appropriate expertise and powers. However, where I do completely agree with the noble Lord, Lord Flight, is that there are not enough banks. Whether it is Metro Bank or any of the other banks that are now getting established, there is general agreement that a more diverse and competitive banking sector will be very much to the benefit of the consumer. Therefore, while I thank the noble Lord, Lord Flight, for his amendments, we are unable to accept them and I hope that they will not be pressed.

Baroness Kramer: My Lords, I speak in support of the noble Lord, Lord Flight. I appreciate that the Government have moved in a significant way in their Amendment 37. What they have put in place is a sort of passive language that the PRA will not stand in the way and be an obstacle to the competition objective of the FSA. I would, however, very much like the Government to look at this again and see if they can turn it into the active, preferably with the same language as they use for the FCA, so that the two are aligned. The underlying reason for this is very straightforward. The PRA is the body that issues bank licences and is therefore significantly in control of the process that leads to more or fewer banks in this country. Its history has been one of discouraging the appearance of new banks. One in the last 137 years is really not the kind of target or the rate at which we want to continue in the future in order to have a more competitive environment. We need to be aware that competition is one of the underpinnings of banking reform-not competition for its own sake but competition because it impacts on standards and because it impacts on the potential for banks that provide customer service. It impacts across a whole range of behaviours, all of which are deeply embedded in the banking reform that everyone in this House is seeking.
	Rather than just speak on my own account, I can refer this House to others who have spent more time than I going in detail through these issues. Having looked through many of the issues, the Treasury Select Committee of the other place, in its Financial Services Bill Report of May 2012-so it is recent-concluded:
	"It remains our view that competitive markets need both freedom to exit and freedom to enter. The Bill contains no proposal for specific objectives related to competition for the Prudential Regulation Authority. We recommend that the House of Lords consider amending the Bill to make competition an objective of the Prudential Regulation Authority".
	So, that is a significant step on from the concession that the Government have made so far.
	I believe that in this House many have a great deal of respect for Sir Donald Cruickshank and the work that he has done on competition. It is something of a scandal that a report produced more than a decade ago has seen so little action when evidently, in hindsight, it has been shown to have got to the heart of many of the issues. I quote from recent comments that Sir Donald has made to the Parliamentary Commission on Banking Standards:
	"I can tell you that if the Financial Services Bill becomes an act in its present form, with that wording for the FCA relative to competition, it will have a minimal impact on the decisions of the FCA, because it is not a primary objective-it is qualified".
	The fact that it is not a primary objective of the FCA adds to the argument for introducing language for the PRA; it is an alternative mechanism if the FCA language is to stand. Sir Donald went on to say:
	"If a regulatory body that is overseeing the activities of a sector of the economy that is central to the operation of the state does not have a competition objective ... it is very likely that competition will be muted. Because it is then in the interests of both the regulated and the regulator to keep competition muted. It is easier for both parties ... It would be extraordinarily difficult for the PRA in this case, if it thought that its objectives might be better delivered via better competition in a particular sector of the economy, to act to achieve that".
	His final comment was that,
	"my preference would be to have both the PRA and the FCA with precisely the same competition objective and powers so that when they are asked to act together, they do so within the same framework vis-à-vis competition. Then, if there are real tensions between their other objectives, we have the FPC and the Bank itself moderating the answer".
	Finally, there is news from the industry. Looking again at the banks that are not one of the big four-or the big five if you want to include Santander-I have just read an excellent piece written for the CSFI by Henry Angest and Atholl Turrell of the Arbuthnot Banking Group. It states:
	"It is our contention that a competition policy which encouraged and facilitated the growth of more small banks could be hugely beneficial both to the economy and to the health and stability of the banking system ... If conditions were created which permitted such small banks to flourish, the result would be both a major enhancement of competition within the sector and improved access to lending for businesses and consumers, through the introduction of players who represent no systemic risk".
	That is almost a selfless comment because it is by an entity that would be put under pressure by those newly arriving competitors.
	So I ask the Government-while accepting that they may not do so today-to keep in mind that moving from a passive to an active at the PRA level could open up competition within the banking sector. The resistance that we have seen for over a hundred years suggests that there is very high resistance to a competitive environment, and this is an opportunity to change that.

Lord Flight: I thank the noble Baroness, Lady Kramer, for her support, and I agree with everything that she has said. I would just add the following point. I think that government policy is perhaps not wholly joined up in that I had a party from BIS come to see me as it was conducting an investigation into the problems with licensing new banks-how long the process took and what issues might be addressed to increase competition and make it, in a safe way, easier for new banks to get started. BIS is aggressively pursuing a more competitive banking system, and although I welcome the Government's passive guideline for the PRA, it seems to me that it is slightly unnecessarily muted.
	I was delighted to read an article on the noble Lord, Lord Sassoon, in yesterday's Sunday Telegraph. In relation to the PRA it said:
	"In particular, the test"-
	of its success-
	"will be whether competition in the banking sector improves. 'One of the mysteries or tragedies of the banking system is how few new entrants there have been over many decades'".
	The noble Lord, Lord Sassoon, added:
	"I would like to see a world much more like the US where thresholds for new entrants are lower, not higher, because they are less systemically risky".
	Again, the noble Lord, Lord Sassoon, seems to be equally of the opinion that a more competitive banking industry is a desirable objective.
	I should explain that I was using the term cartel not in a legal sense but purely reflecting that where four organisations have about 80 per cent of the business they automatically tend to behave as a cartel. If one looks at the history one will find that, first, the abolition of banks giving any services to their customers was started by Lloyds and followed by everyone else, and likewise with the abolition of banking charges. So if there are four key players the others always have to follow whatever the lead one does. They are not necessarily collaborating. It was an economic point that I was seeking to make, not a banking point.
	I shall withdraw the amendment although I think that merely asking the PRA to encourage a competitive banking industry is fairly mild. I greatly welcome the Government finally crossing the line and giving the PRA some kind of competitive objective. I hope that before the Bill is enacted the Government might reconsider, as the noble Baroness, Lady Kramer, commented, moving from a rather strange, passive, tortured objective to a simple, non-too-pushy, positive objective. I beg leave to withdraw the amendment.
	Amendment 36A withdrawn.
	Amendment 36B not moved.
	Amendment 37
	 Moved by Lord Newby
	37: Clause 6, page 31, line 11, at end insert ", and
	(b) the need to minimise any adverse effect on competition in the relevant markets that may result from the manner in which the PRA discharges those functions.
	(2) In subsection (1)(b) "the relevant markets" means the markets for services provided by PRA-authorised persons in carrying on regulated activities."
	Amendment 37 agreed.
	Amendment 37ZA to 37A not moved.
	Amendments 38 and 39
	 Moved by Lord Newby
	38: Clause 6, page 32, leave out lines 15 to 18
	39: Clause 6, page 32, line 18, at end insert-
	"2LA The PRA Practitioner Panel
	(1) Arrangements under section 2L must include the establishment and maintenance of a panel of persons (to be known as "the PRA Practitioner Panel") to represent the interests of practitioners.
	(2) The PRA must appoint one of the members of the PRA Practitioner Panel to be its chair.
	(3) The Treasury's approval is required for the appointment or dismissal of the chair.
	(4) The PRA must appoint to the PRA Practitioner Panel such persons representing PRA-authorised persons as it considers appropriate.
	(5) The PRA may appoint to the PRA Practitioner Panel such other persons as it considers appropriate."
	Amendments 38 and 39 agreed.
	Amendment 39A not moved.
	Amendment 40
	 Moved by Lord Newby
	40: Clause 6, page 33, line 37, leave out "2H" and insert "2H(1)(a)"
	Amendment 40 agreed.
	Amendment 41
	 Moved by Lord Hodgson of Astley Abbotts
	41: Clause 6, page 34, line 1, leave out "or restriction which is" and insert ", restriction or operational rules which are"

Lord Hodgson of Astley Abbotts: My Lords, in moving Amendment 41, I will speak to Amendments 42 and 43. My noble friend Lord Sharman has put his name to them as well but sadly he cannot be with us tonight. This is familiar territory for noble Lords who took an interest in Committee, so I will endeavour to cut to the chase, emphasising both the reasons for these amendments and why I have so far failed to be reassured by my noble friend's response. These amendments seek to change Clause 6, which introduces a new Section 3B entitled:
	"Regulatory principles to be applied by both regulators".
	The clause goes to the heart of the philosophy that underpins the new regulatory structure. At present, the regulator is only required to be "proportionate" in its approach. My amendment seeks to add the words "reasonable and fair" so that there are three adjectives.
	I make it clear at the beginning that this is not an attempt to plead for lower regulatory standards. It is absolutely in the interests of the City to have proper standards of regulation, which is the best way to encourage the growth and development of the financial services industry. Achieving the appropriate level of regulation requires a difficult balance to be struck. If it is too low, London's reputation as a good and safe place to do business will be damaged and business will move away. If it is too high, the costs, both financial and in management time, will mean that innovation will be discouraged, whole areas of activity will have the stability of the graveyard and plans for the expansion of established businesses will be shelved or transferred to other financial centres. Somebody explaining it to me in the City said, "It's like Neapolitan ice cream, you have to try to scoop out the vanilla layer that is in the middle between the chocolate and the strawberry".
	I am convinced that the new system will work most effectively if we can encourage the use of judgment and not rely merely on the rigidities of process or box-ticking. Process of course has an important part to play; it provides the framework of the regulatory system, but unless it is informed by judgment it cannot be truly effective. In earlier debates on this issue, I explained why, in my view, confining regulatory principles to "proportionate" emphasised process at the expense of judgment. I explained in Committee the definition of these three words in the Oxford English Dictionary. I pointed out that "proportionate" suggested a defined, fixed relationship, as well as a one-way one. The example that I used from the Oxford English Dictionary was:
	"The toll .. on the canal is proportionate to weight".
	By contrast, "reasonable"-
	"Having sound judgement; ready to listen to reason, sensible"-
	suggested an element of judgment and of a two-way process.
	Currently, there is a widespread view in the City that the regulatory philosophy has shifted to give a much greater emphasis to process and box-ticking, and to the regulator being seen to have covered the bases at the expense of an open judgment-based relationship. I referred earlier to the Star Chamber-like processes of the significant influence function committee, whereby individuals are left in a Kafkaesque limbo for months. I have referred to the indiscriminate use of Section 166 skilled persons reviews, 800 of which are said to be outstanding and likely to cost some £160 million to £200 million to complete. All of that will in due time be paid for by the consumer.
	My noble friend Lord Sassoon, not here tonight, has pointed out that if people or firms believe that they have been unfairly treated, they can apply for judicial review. The idea that an individual would take on the might of the regulator is laughable. Whichever of my noble friend's Bill team officials drafted that reply needs to get some exposure to the real world.
	This change of approach by the regulator has caused an equal and opposite reaction in the regulated community. We have seen the emergence of plea bargaining. Just as Mr Tappin, extradited to the US on a charge that he strongly denied, concluded that a guilty plea leading to three years in a UK jail was preferable to a possible 30 years in a US penitentiary, so individuals decide to give up the fight and agree to a reduced penalty in return for a guilty plea. As one person put it to me, "I want to get on with my life". He did not believe that he was guilty, but he had a life to live and did not have the time available or the resources that the regulator has at his disposal.
	As my noble friend Lord Flight pointed out in our debate in Committee on 24 October, firms now disclose the minimum necessary to comply with the law. They have learnt that any admission of weakness will be seized on by the regulator, who all too often appears to act as if they believe that they have been told only half the story.
	I do not believe that these and similar developments bode well for a future regulatory approach. How do we break this vicious circle? The early signs from the FCA are not encouraging. Some testosterone-fuelled remarks about "shooting first and asking questions after" have been quoted previously in your Lordships' House. Could there ever be a sensible regulatory principle? The tone of Journey to the FCA, the booklet recently published, seems to give only the slightest of nods to the need to create appropriate relationships with the regulated firms. I have quoted previously at some length from that document to show what I mean and I shall not trespass on the good will of the House at this late hour again this evening.
	This is not just a theoretical discussion. Once confidence in the regulator's readiness to listen to reason is damaged or lost, we risk a move away from the United Kingdom and the City. It may be a trickle at first, but it could quickly gather pace. I hope that the Minister's officials have drawn his attention to the article in last Friday's Financial Times,
	"MPs to probe London job losses",
	in which a lobby group points to,
	"an 'amber warning light' flashing over the country".
	I hope that his officials have also picked up the piece in the Sunday Times about London being ousted by New York as the largest financial centre. The Bill team may disregard that as journalistic puff, but they might like to read the document from the ABI which states:
	"As we discussed in Chapter 1, we would like to go further in developing a common FCA and industry sense of purpose, to deliver well-functioning markets that benefit consumers and, ideally, help the country tackle some significant public policy challenges. It is in the interests of the FCA and the industry to work together to jointly enhance their reputations. Increased public trust and greater customer confidence would be beneficial for the industry, but they would also reflect well on the FCA, and indeed the Government".
	Significantly, it then states:
	"This requires a change from the FSA's traditional approach, which did not usually convey a drive towards medium-term positive outcomes".
	These may or not be the beginning of a trickle, but they are certainly a lot of straws in the wind of people dissatisfied with the philosophy that is being adopted and that would be enhanced if we had just the word "proportionate" left in the regulatory principles.
	I shall make one final point. I said earlier that my noble friend had always maintained that there is no need to add "reasonable and fair" because "proportionate" includes that requirement. As I have explained, I do not agree. However, I am not sure that the Government really agree either. When my noble friend wrote to me, the noble Lord, Lord Phillips, and the noble Baroness, Lady Kramer, about the social investment issue that we discussed earlier today, the note read,
	"Ministers are clear that this should not be done at any cost ... we want to see the regulator react flexibly, openly and proportionately".
	Clearly, his officials do not believe that the definition of proportionality includes flexibility or openness, or why would they have drafted the note in that way? How then can they argue that "proportionate" includes "reasonable and fair"? If my noble friend were to say that, if I were to withdraw my amendment in favour of one that replaced the words "reasonable and fair" with "flexible and open", he would accept it, I would be happy to do so. I beg to move.

Lord Flight: My Lords, I rise to speak most strongly in favour of my noble friend Lord Hodgson's amendment. I hope that the Government will heed what he said. First, it is quite clear-you have only to look it up in the dictionary-that "proportionate" does not mean "reasonable and fair" as well. It has an arithmetic type of meaning. Secondly, my understanding when my noble friend Lord Sassoon was working on his plans for regulatory reform was very much that we wanted to have a well equipped central bank regulator of banks that would act in a judgmental way and be bright enough to see problems coming, not work on a box-ticking basis, and head them off as, in the past, various central banks have done quite successfully. You really cannot have a judgmental regulator without the inclusion of "reasonable and fair" in their objectives.
	I add to some of the figures quoted from the FT Weekend. It was not just about New York; it also pointed out that the number of people working in the financial services industry in Hong Kong is now larger than that in London and indeed that London has lost about 100,000 jobs in the financial services industry since 2007.
	Within the territory-I may have made the point in a different way before-I perceive that what happened is that light-touch regulation got a bad name and should never have been what it turned out to be. The reaction to that has been regulators turning macho. The reaction to that has been even very large and proper businesses saying, "We do not want to discuss things with the regulators. We are not going to voice our objections. We will shut up because we are frightened we will be picked on if we cause trouble". Again, I would like to see the regulators state publicly that they want to discuss things with the industry, they welcome comments and are certainly not in the business of taking it out on firms just because they may disagree with what the regulator proposes. We have an extremely unhealthy situation right now where there is not dialogue or constructive reaction and discussion to the proposals coming out of the regulator.
	I repeat: my noble friend Lord Hodgson has got it absolutely right. The amendment is fundamental to the reforms going through, if they are to work as I believe the Government intend.

Lord Newby: My Lords, these amendments again look to amend the proportionality principle to which both regulators are required to have regard when carrying out their general functions. Noble Lords will not be surprised to hear me say that that principle will play an extremely important role in the new regulatory system. It ensures that the regulators must consider whether the burdens they impose will be proportionate to the benefits that are likely to result. I am sure that that principle is universally accepted.
	Amendment 42 specifically adds a requirement for the regulators to have regard to being "reasonable and fair", as well as "proportionate". Noble Lords will remember that my noble friend Lord Sassoon expressed support for the sentiment behind the amendment at an earlier stage. I am sure that all noble Lords would accept that nobody from this Dispatch Box would be a proponent of a new regulatory system we were creating if for one second we thought that the regulators would act in a way that was unfair or unreasonable.
	Does the Bill achieve that objective? We believe that it does. The regulators will not be required to have regard to being fair and reasonable; they will have legal duties to be fair and reasonable; they go further than the amendment proposes. As we explained at an earlier stage, the regulators will have a duty under public law to act reasonably; they are also under a duty to comply with the rules of natural justice, so they will be required to follow procedures and processes that are fair.
	My noble friends Lord Hodgson and Lord Flight gave a definition of proportionality. The definition that they gave was narrower than most people's view of what proportionality means. In certain circumstances, it is a mere mathematical concept, but if I say that I am going to give a proportionate response to something that someone does to me, it is not simply calibrated or adding up figures; I think that it is seen in common parlance as being synonymous with a reasonable and fair response. As I said, the requirement on the regulators under public law to act in that way underpins that thought.
	I have considerable sympathy, however, in respect of the threats that London faces as a pre-eminent financial centre. It is not surprising that Hong Kong and Singapore are growing very quickly, given what has happened to the economies in those parts of the world. You would expect growth there, although London is contracting in part because some of the activities that have been undertaken in London are no longer either profitable or, in some cases, credible. When one sees, for example, UBS downsizing significantly in London, it is not doing it because of the regulatory regime; it is doing it for fundamental business purposes, against which these provisions would have no bearing.
	Where I agree with my noble friends is that we must ensure that the mindset of regulators in the UK is not negative. It is always been our intention that they would adopt a judgment-based approach; that has been stated on many occasions. That is the key to effect a change of culture in the way that the regulators work. If the amendment would have that impact, the Government might be more sympathetic to it. We simply do not believe that it would. As I said, we believe that the Bill will require the regulators not just to act proportionately but, under their more general duties, to act reasonably and fairly as well. On that basis, I hope that my noble friend will feel able to withdraw the amendment.

Lord Hodgson of Astley Abbotts: My noble friend will not be surprised to hear me say that I am extremely disappointed with that response. I thank my noble friend Lord Flight for his helpful comments, in particular, about effective regulation being a two-way street where people communicate issues and problems that they are facing, not in fear that they will have the book thrown at them but because it is in the regulators' and regulatees' interests to address problems and find solutions before they become unmanageable.
	My noble friend falls back on the legal words that the regulator has to be fair and reasonable and that there is natural justice. I prefer his point about mindset. The fact is that "proportionate, fair and reasonable" imposes a different mindset on the regulator than "proportionate" on its own. He and the Government may have convinced themselves that the threat to London is coming from the natural effluxion of economic activity to the Far East. I think that they are in danger of being sadly mistaken. We have a chance in this Bill to address the problems that have bedevilled until recently and to set out our stall for a new, judgment-based, regulatory regime, philosophy and approach. By these as by a series of other decisions taken by the Government, we are missing an opportunity which we will greatly regret having not taken in the years ahead. However, the hour is late, and though I am sorely tempted to divide the House just to have my own bit of testosterone, I beg leave to withdraw the amendment.
	Amendment 41 withdrawn.
	Amendments 42 and 43 not moved.
	Amendment 44
	 Moved by Lord Newby
	44: Clause 6, page 34, line 5, at end insert-
	"( ) the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term;"

Lord Newby: My Lords, we all accept that the financial services sector is integral to the prosperity of the wider economy. However, we have also seen what happens when light-touch regulation and excessive risk-taking by financial institutions conspire to produce the perfect storm, culminating in the recent financial crisis. The aftermath of this, of course, is still an impediment to growth in the UK. An appropriately regulated financial sector will be key to the economy's resurgence, and I am confident that the reforms that we are making to the regulatory system in this Bill will ensure this.
	However, at Second Reading and in Committee, my noble friend Lord Sassoon listened to concerns from noble Lords on all sides of the House that the regulators would be excessively focused on their remits and would act in a disproportionate way which might constrain the financial services sector from acting to support activity in the wider economy. That is why a commitment was made to return with an amendment that would require the PRA and FCA to consider the wider impact of their actions.
	Amendment 44 delivers on this commitment. It requires the FCA and PRA to have regard to the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term. This is a concept with which of course it would be extremely difficult to disagree. Sustainable economy growth is desirable, and it is important that the regulators will now be required to show how they have considered this in carrying out their general functions.
	To a certain extent, this gets back to the amendments that we have just debated. The regulators should not be the agents of the industry that they regulate. Regulation itself is not about enhancing the international competitiveness of our domestic financial sector, even if that is an outcome when regulation is proportionate and effective. This amendment recognises the link between an apparently appropriately regulated financial sector and the growth of the wider economy, and requires that the regulators bear it in mind. That is why the amendment I have tabled strikes an appropriate balance: it creates an expectation that the regulators must think carefully about the impact that their regulation may have on the wider economy; this is absolutely right. Seen in the light of the recent financial crisis, it is clear that taking appropriate regulatory action in good time would have served to safeguard sustainable economic growth in the medium to long term. This amendment will ensure that the regulators consider the wider economic impact of their actions. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, despite my disappointment over the last three amendments, I congratulate the Government on having brought forward this amendment. It follows the Government's sensible decision earlier in the passage of the Bill to give the Financial Policy Committee an explicit objective of growth and employment. This amendment achieves a sensible and pragmatic solution, takes account of the needs of the economy and the priorities of business and the financial sector, and at the same time allows regulators rightly to focus on their important consumer protection and financial stability objectives.
	There is a small sting in the tail for the Minister. Given that this is a new requirement for the regulators, I encourage him to ask the FCA to come forward with its vision of how it will interpret its regard to economic growth. The regulator is already up and running in shadow form, with designated leadership teams already starting to set out publicly their approach. It is clearly important that the will of the Government and indeed of Parliament is incorporated in that regulatory planning. I applaud the Government for bringing forward this amendment but would argue that in order to achieve their desired goal of supporting growth, work needs to begin now to set out how the regulators will interpret and implement this new requirement.
	As a second point, will the Minister to explain a little about the use of crowd funding? The Prime Minister has said that he wants the UK to become "a start-up nation". As he puts it, he wants to,
	"set business free to drive our economy forward, not burden business".
	This amendment shows that the Government are, quite rightly, leaving no stone unturned in their search for growth in our economy.
	Last week, we saw the re-election of Barack Obama to the White House in the United States. In the US, the Jumpstart Our Business Startups Act, best known as the JOBS Act 2012, is one of the main pillars of the White House's growth strategy. The JOBS Act creates a new regulatory start-up regime for crowd funding-meaning in this case investment, mainly over the internet, in start-ups and small businesses-that is exempt from mainstream US securities laws. It allows ordinary retail investors to invest up to a maximum of 10% of net income through crowd funding sites at low cost, creating a whole nation of potential angel investors. It would be a start-up nation, which may be just what we need in the UK.
	It is estimated that if Americans invest just 1% of their savings via crowd funding this policy change will deliver more than $300 billion to small US businesses, which will stimulate entrepreneurship, innovation and job creation. Imagine the benefits to the UK if we could bring about a similar shift. Reverting slightly to our discussions earlier this evening, however, I am concerned that our financial promotion regime remains too paternalistic and does not yet sufficiently reflect the opportunities and challenges presented by social media, which are rapidly developing. Is there any problem with ordinary retail investors being able to invest small amounts of money in businesses of their choice, as risks are limited where the amounts are capped? Should we not make investors free to make their own choices? At present, the regime is too costly and too restrictive.
	As was said earlier, I am aware that the Government are looking at the possible reform of the financial promotion rules as part of their Red Tape Challenge, and I welcome that initiative. I would favour reform of the rules to allow retail investors to invest, say, up to a defined cap of £500 per annum. Once the system has been shown to work, consideration could then be given to increasing that sum. When he comes to finalise a reply on this debate, will my noble friend tell the House whether the Government are looking at the US JOBS Act; and what, following the passage of the Bill, they will do to explore whether our own financial promotion rules can be reformed to allow US-style crowd funding investment to take place in the UK and give breadth, depth and life to the Government's amendment?

Baroness Kramer: My Lords, I simply want to ask a question of the noble Lord, Lord Hodgson, as well as to say that I am very pleased with the amendment, and especially with its focus on the medium to long term. It gets away from some of the short-termism that has plagued a lot of financial regulation in the past. In terms of crowd funding, I wonder whether the noble Lord is somehow distinguishing that from the peer-to-peer and crowd funding that we have talked of fairly extensively. He will know that in the UK the shoe is on the other foot; providers of both crowd and peer-to-peer funding have been coming to the Government, saying, "We need a regulatory environment in which to operate. We operate with virtually total freedom now, particularly on the lending side, which is not healthy for our industry because it creates the opportunity for rogues to come in". It is my understanding that the Government have given a commitment to the industry that they will work with it to create exactly that regulatory environment.
	The equity side is of course different because it is already regulated by the FCA, so players such as Seedrs and others have obtained the various authorisations and are beginning to build their books here in the UK. In this country, rather than having the US's problem of excessive regulation, we are coming at it almost from the opposite situation: can we please have some measure of regulation so that the cowboys are kept out of this industry and do not destroy it by creating some terrible losses and headlines?

Baroness Noakes: Will the Minister elaborate on what he said about the role of this amendment in relation to the fostering of a successful financial services industry in this country? The UK is a service-led economy, and the largest sector within it is the financial services sector. If we are looking at sustainable growth in the UK economy in the medium term, and probably in the long term as well, we need to look to a successful financial services sector. I thought that I heard the Minister say something along the lines that this is really about the non-financial services sector and about underpinning economic growth outside it. It seems to me that the amendment enables the regulators to take into account the importance of a successful and sustainable financial services sector that is competitive internationally, because it is through that that we will produce growth in the UK economy. I will be interested in the Minister's views.

Lord Tunnicliffe: It is not often that I rise to offer sympathy to the Minister. He was quite right to say that the generality of this amendment, which in my recollection came from all sides of the House, particularly from these Benches, was stressed by us in another place. Every now and then, one has to look at a massive Bill such as this and recognise that the final test of all legislation is that it contributes to the general good. I think that the two lines of this growth amendment produce the right reminder to the regulators that they have to contribute to the general good-I share the emphasis placed by the noble Baroness, Lady Kramer, on the medium and long term-and I warmly welcome it.

Lord Newby: I am grateful for the contributions from all noble Lords who have spoken. I do not want to go into a lengthy response at this time of the evening, but not because I do not feel that we know the answers to the questions. I shall deal with a couple of specific points that were made. My noble friend Lord Hodgson asked in particular about crowd sourcing. To a certain extent, my noble friend Lady Kramer dealt with that. Government Amendment 26, which we debated earlier this evening, goes some way to recognise the validity of crowd sourcing. As my noble friend Lord Hodgson will know, there is already one fully authorised, equity-based crowd-funding platform operating here and growing. We will continue to consider how we can help this and other platforms grow. It is all part of increasing diversity of funding, which we strongly support.
	My noble friend Lady Noakes asked whether this amendment relates to the financial services sector as it relates to the rest of the economy and whether the Government accept that sustainable growth in the financial services sector is desirable. We agree that it is crucial. The financial services sector plays a major part in the UK economy, not just in helping the rest of the UK economy to grow, but in its own right. It is a very significant source of export earnings. The whole of the Bill is designed to provide regulatory underpinning that will mean that the financial services sector is safe and secure and can grow in the medium and long term. I hope that with those comments the House will feel able to support the amendment.
	Amendment 44 agreed.
	Amendment 45
	 Moved by Lord Newby
	45: Clause 6, page 34, line 11, at end insert-
	"(da) the desirability where appropriate of each regulator exercising its functions in a way that recognises differences in the nature of, and objectives of, businesses carried on by different persons subject to requirements imposed by or under this Act;"
	Amendment 45 agreed.
	Amendment 45A not moved.
	Amendment 46
	 Moved by Lord Newby
	46: Clause 6, page 34, line 43, leave out "2H" and insert "2H(1)(a)"
	Amendment 46 agreed.
	Amendment 46A
	 Moved by Baroness Hayter of Kentish Town
	46A: Clause 6, page 36, line 9, at end insert-
	"( ) the exercise of their functions in relation to the stewardship of listed companies by institutional investors, with a view to controlling systemic risk and protecting consumer interests"

Baroness Hayter of Kentish Town: My Lords, these amendments are about the heart of banking and insurance. They are about stewardship. Amendment 46A requires the FCA and the PRA to co-ordinate to ensure effective stewardship. Amendment 79B clarifies that the FCA's powers enable it to make rules on stewardship. They give stewardship an explicit place n the Bill and confirm that the Government expect the FCA to act on this.
	In the aftermath of the financial crisis it was acknowledged that institutional investors had acted as "absentee landlords", not doing enough to challenge the risky behaviour of the banks they effectively owned. This had direct consequences for the savers whose money these shareholders were investing. The Financial Reporting Council established the stewardship code to encourage investors to behave as active owners in the companies in which they invest. This is vital to building responsible capitalism where shareholders exercise greater oversight of, for example, executive pay. As the noble Lord, Lord Turner, told the Joint Committee,
	"shareholders ... have major responsibilities. A lot of what went wrong with our banking system was encouraged by a set of shareholders who thought that high levels of leverage, rapid growth of EPS and aggressive acquisitions were rather sensible".
	Stewardship was identified by the Kay review as a principle of more effective capital markets. The first of his principles reads:
	"All participants in the equity investment chain should act according to the principles of stewardship ... respect for those whose funds are invested or managed, and trust in those by whom the funds are ... managed".
	Therefore, if this Bill is to help prevent another financial crisis, regulators must address the quality of shareholder oversight.
	The FSA has a rule requiring asset managers acting on behalf of institutional clients to disclose whether they commit to the stewardship code. However, the organisation FairPensions found that the quality of such disclosures is often poor, particularly over managing conflicts of interest. Furthermore, this FSA rule does not mandate compliance and does not apply to firms acting on behalf of retail clients. It looks rather as if the FSA does not regard stewardship as a consumer issue, despite its implications for consumer outcomes.
	The Bill makes no mention of stewardship despite the importance of the objectives of both the FCA and the PRA and despite the fact that shareholders have the primary responsibility for ensuring that banks are well run. Regulators simply must take an interest in how shareholders discharge this responsibility. I should add, as was mentioned earlier, that the millions of employees soon to be auto-enrolled will depend in part on their agents making sure that the companies in which they invest are well run.
	Stewardship is key but there is a mismatch between the code and its enforcement. The FRC oversees the stewardship code, but does not regulate the entities to which the code applies. The PRA may take little interest because the firms are FCA-regulated. Yet the FCA may not accord this any priority, given that the system-wide problems caused by a lack of stewardship make it hard for the FCA to intervene in relation to a particular firm or group of consumers.
	The current duty of co-ordination will not resolve this, since it focuses on reducing the burden of regulation on dual-regulated firms, rather than on preventing gaps in regulation between the two new authorities. Stewardship might just end up between the cracks. I feel sure that the Minister will agree on the importance of stewardship and I therefore ask him where responsibility for it will sit in the new architecture. I beg to move.

Lord Newby: My Lords, no one would doubt the importance of stewardship and of ensuring the proper conduct of those authorised persons who manage investments on behalf of others, including in relation to the exercise of voting rights. Stewardship is also a matter for a wider range of authorities than the financial regulators-in particular, the Financial Reporting Council which has issued a stewardship code.
	Amendment 46A would require the regulators to include in their MoU provision about the exercise of their functions relating to stewardship. This amendment is based on the premise that the PRA has a role in stewardship. I do not think that this is a correct premise. First, only the FCA will have any powers in relation to listed companies themselves. The PRA has no responsibilities in relation to listing. Secondly, the regulated activities which cover managing investments are not PRA-regulated activities. The PRA will need to regulate an authorised person who manages investments only if the firm also has a permission to carry on a PRA-regulated activity, such as accepting deposits or effecting or carrying out contracts of insurance. In those cases, the PRA will be the prudential supervisor and the MoU will already cover the co-ordination of FCA and PRA interests in these firms.
	Amendment 79B would make clear that the FCA's powers to make general rules include the ability to make rules relating to stewardship. I can assure the noble Baroness that the amendment is not needed. First, there is no doubt that the FCA's general rule-making powers extend to making rules about stewardship. New Section 137A to be inserted into FiSMA 2000 under Clause 23 of the Bill is quite clear. It states:
	"The FCA may make such rules applying to authorised persons ... with respect to the carrying on by them of ... activities ... as appear to the FCA to be necessary or expedient for the purpose of advancing ... its operational objectives".
	Secondly, the FCA's powers essentially follow the existing FSA powers. The FSA has already made a rule which requires UK-authorised asset managers to put statements of commitment to the FRC's stewardship code on its websites or, if an asset manager does not commit to the code, to provide its alternative investment strategy there. I expect the FCA to continue with this rule. Far from any suggestion that the responsibility will fall through the cracks between the two regulators, it is absolutely clear that the FCA will take on the FSA's existing powers in respect of stewardship and ensure that they are properly implemented. I hope, therefore, that the noble Baroness will agree to withdraw her amendment.

Baroness Hayter of Kentish Town: I thank the noble Lord, Lord Newby, for that. Of course, he did not answer the point that I made. When research is done, it is found that details of the "the comply or explain" commitment are not on the web-neither what is being complied with in the code nor what is there instead.
	However, I thank him for the clarity of his answer that it is an FCA responsibility. That rather begs a question that I asked in Committee, and to which I may return, that the code is the responsibility of the Financial Reporting Council, which gets no mention in this Bill. In Committee, the Government refused my suggestion that there should be an MoU between the FCA and the FRC, which is regrettable. The importance that the noble Lord has said about the code and the ability of the FCA to make rules, including the commitment to follow it, strengthens the case for a better connection between them. I at least thank him for clarity on that, but we may need to come back to look at the FCA aspects. For the moment, I beg leave to withdraw the amendment.
	Amendment 46A withdrawn.
	Amendment 47
	 Moved by Lord Newby
	47: Clause 6, page 36, line 30, leave out from beginning to end of line 11 on page 37 and insert-
	"(1) The regulators must prepare and maintain a memorandum which describes in general terms-
	(a) the role of each regulator in relation to the exercise of functions conferred by or under this Act so far as they relate to with-profits insurers, and
	(b) how the regulators intend to comply with section 3D in relation to the exercise of those functions so far as they relate to the effecting or carrying out of with-profits policies by with-profits insurers.
	(2) The memorandum required by this section may be combined with the memorandum required by section 3E.
	(3) If the memorandum required by this section is contained in a separate document, the PRA and the FCA must publish the memorandum as currently in force in such manner as they think fit.
	(4) Subsections (1) to (3) apply only if the effecting or carrying out of with-profits policies is a PRA-regulated activity.
	(5) For the purposes of this section-
	(a) a "with-profits policy" is a contract of insurance under which the policyholder is eligible to receive a financial benefit at the discretion of the insurer;
	(b) a "with-profits insurer" is a PRA-authorised person who has a Part 4A permission, or permission resulting from any other provision of this Act, relating to the effecting or carrying out of with-profits policies (whether or not the permission also relates to contracts of insurance of other kinds).
	(6) The Treasury may by order amend the definition of "with-profits policy" applying for the purposes of this section."

Lord Newby: The government amendments in this group make a change to the way that with-profits policies will be regulated under the new framework. We had a very useful debate on this subject in Committee. As my noble friend Lord Sassoon stated at the time, with-profits policies give rise to a particular risk of unfairness because the benefits that policyholders receive are largely at the discretion of the firm. The tensions between the firm treating current and future policyholders fairly, and maintaining safety and soundness, are especially acute. It is therefore difficult to separate the prudential and conduct issues in the regulation of "with-profits", much more so than in any other type of financial services business. The Government's main objective, therefore, is to ensure that there is clarity in decision-making in this area. The approach that was originally envisaged in the Bill was that this clarity would be delivered by giving the PRA sole responsibility for ensuring an appropriate degree of protection for policyholders in relation to the making of discretionary payments.
	The noble Baroness, Lady Drake, raised a number of concerns including the possibility that excluding the FCA from decision-making would lead to consumer detriment, as the prudentially focused culture of the PRA may lead it to pay insufficient attention to the fairness element of policyholder protection. The Government have now given further consideration to this, and on balance we agree that this is an area where the Bill could be improved. We have therefore brought forward amendments that will ensure that both the FCA and the PRA have a responsibility in relation to the regulation of with-profits, rather than giving sole responsibility to the PRA. This will mean that the FCA has a full role in consumer protection, as it does in other firms. The PRA and FCA will have to put in place an MoU setting out their respective responsibilities in this area.
	However, to preserve the sense that there should be a final decision-maker, the PRA will be given the power to require the FCA to refrain from actions that conflict with its general or insurance objectives, for example if it considers the FCA action could harm the safety and soundness of a particular with-profits insurer or with-profits insurers generally. To ensure scrutiny and accountability, any such veto must be published unless the PRA considers it is against the public interest to do so. The Government's view is that this approach strikes the right balance between giving the FCA a much stronger mandate, and preserving clarity of decision-making and responsibility in this exceptionally complicated area. I hope that the amendment meets the noble Baroness's concerns, and I beg to move.

Lord Tunnicliffe: My Lords, I thank the Government for bringing forward this group of amendments, which meets the concerns raised by the noble Baroness, Lady Drake. I particularly thank the Minister for mentioning her in his speech. She regrets that she cannot be here, but I am sure she will feel her efforts were worthwhile by resulting in this group of amendments.
	Amendment 47 agreed.
	Amendments 48 to 60
	 Moved by Lord Newby
	48: Clause 6, page 37, leave out line 21
	49: Clause 6, page 38, line 39, at end insert-
	"3IA Power of PRA in relation to with-profits policies
	(1) Where the first, second and third conditions are met, the PRA may give a direction under this section to the FCA.
	(2) The first condition is that the FCA is proposing to exercise any of its regulatory powers in relation to with-profits insurers, a class of with-profits insurers or a particular with-profits insurer.
	(3) In subsection (2) "regulatory powers", in relation to the FCA, means its powers in relation to the regulation of authorised persons, including its powers under Part 24 (insolvency) but not its powers in relation to consent for the purposes of section 55F or 55I.
	(4) The second condition is that the proposed exercise of the power relates to the provision of financial benefits under with-profits policies at the discretion of the insurer, or affects or may affect the amount, timing or distribution of financial benefits that are so provided or the entitlement to future benefits that are so provided.
	(5) The third condition is that the PRA is of the opinion that the giving of the direction is desirable in order to advance the PRA's general objective or its insurance objective.
	(6) A direction under this section is a direction requiring the FCA not to exercise the power or not to exercise it in a specified manner.
	(7) The direction may be expressed to have effect during a specified period or until revoked.
	(8) The FCA is not required to comply with a direction under this section if or to the extent that in the opinion of the FCA compliance would be incompatible with any EU obligation or any other international obligation of the United Kingdom.
	(9) Subsections (1) to (8) apply only if the effecting or carrying out of with-profits policies is a PRA-regulated activity.
	(10) In this section "with-profits insurer" and "with-profits policy" have the same meaning as they have for the purposes of section 3F."
	50: Clause 6, page 38, line 40, at end insert "or 3IA"
	51: Clause 6, page 38, line 42, at end insert "or 3IA"
	52: Clause 6, page 38, line 43, after "3I" insert " or 3IA"
	53: Clause 6, page 39, line 1, at end insert "or 3IA"
	54: Clause 6, page 39, line 2, after "3I" insert " or 3IA"
	55: Clause 6, page 39, line 4, after "3I" insert " or 3IA"
	56: Clause 6, page 39, line 6, after "3I" insert " or 3IA"
	57: Clause 6, page 39, line 7, at end insert-
	"(3A) The PRA must-
	(a) publish the direction and statement, or the notice, in such manner as it thinks fit, and
	(b) where the direction or notice relates to a particular authorised person or a particular with-profits insurer, give a copy of the direction and statement, or the notice, to that person."
	58: Clause 6, page 39, leave out lines 14 to 19
	59: Clause 6, page 39, leave out lines 20 to 28 and insert-
	"(7) Subsection (3A) does not apply where the PRA, after consulting the Treasury, decides that compliance with that subsection would be against the public interest, and at any time when this subsection excludes the application of subsection (3A) in relation to a direction under section 3I, subsection (5) also does not apply.
	(8) Where the PRA decides that compliance with subsection (3A) would be against the public interest, it must from time to time review that decision and if it subsequently decides that compliance is no longer against the public interest it must-
	(a) comply with that subsection, and
	(b) in the case of a direction under section 3I, notify the Treasury for the purposes of subsection (5)."
	60: Clause 6, page 40, line 37, at end insert "or 3IA"
	Amendments 48 to 60 agreed.
	Schedule 3 : Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
	Amendment 61
	 Moved by Lord Newby
	61: Schedule 3, page 207, line 28, after "3I" insert "or 3IA"
	Amendment 61 agreed.
	Amendment 61A
	 Moved by Baroness Hayter of Kentish Town
	61A: Schedule 3, page 207, line 31, at end insert-
	"( ) an assessment as to how well markets are meeting the needs of businesses and households in lower income communities,"

Baroness Hayter of Kentish Town: My Lords, we have spoken already about the need to have information from banks about their lending to different communities and sizes of business. The noble Lord, Lord Newby, said that the FCA will collect data about access to financial services. In the amendments we seek to obtain information to identify how well markets are working for lower-income communities. This is therefore broader than simply small businesses, and is about whether lower-income households can get credit, insurance, saving products and banking services. We know already, for example, that about 1.5 million people have no bank account, but we need to know more about what other groups are excluded from such services and products. We therefore ask for the FCA-which will be able to obtain the information-to research and assess whether such needs are being met and to include its findings together with any strategy for dealing with identified unmet need in its annual report. If the FCA is doing its job, it will do this anyway, but this is belt and braces so let us write down our expectations of it in this regard. I beg to move.

Lord Newby: My Lords, having agreed earlier today that we want to require the FCA to obtain and publish these data, obviously we have considerable sympathy with these amendments to the extent that they seek to flesh out how that remit should be undertaken. However, that is the end of the good news because we think that the amendments are in part unnecessary and in part inappropriate because they are too prescriptive.
	We believe that there is no need for a specific provision relating to the annual report for the FCA because in paragraph 11(1)(b) of Schedule 3 we state that the annual report must cover,
	"the extent to which, in its opinion, its operational objectives have been advanced".
	Given that in a series of amendments today we have strengthened the role of the FCA in looking at disadvantage and making that a new area where the FCA has a very specific responsibility, it will have to report in those areas in any respect.
	Amendment 61B is very prescriptive. Our view is that with the FCA reporting on this, as with many other things that it will report on, the Bill itself should not have detailed prescription as to how the FCA should do its work. It has a legal requirement to report and it is up to the FCA to respond as it thinks fit. If there is any sense that it is falling down on its objectives, it will be reporting to Parliament and will be questioned by Parliament and Parliament will have the opportunity to raise with representatives of the FCA on a regular basis how it is meeting this and any other of its statutory objectives. I hope that the noble Baroness will feel that the outcomes that she seeks will be achieved in any event and that she can withdraw her amendment.

Baroness Hayter of Kentish Town: My Lords, I warmly thank the Minister because sympathy was much more than I got when I spoke on consumer input to the PRA. So I think that I will bank that one. I thank him, too, for endorsing the spirit of my amendments on the record so that when the report comes out people will be able to quote his very wise words that that was what we were looking to the FCA for. With that, I beg leave to withdraw the amendment.
	Amendment 61A withdrawn.
	Amendment 61B not moved.
	Amendment 62
	 Moved by Lord Newby
	62: Schedule 3, page 210, leave out lines 8 to 21 and insert-
	"19A (1) The FCA must in respect of each of its financial years pay to the Treasury its penalty receipts after deducting its enforcement costs.
	(2) The FCA's "penalty receipts" in respect of a financial year are any amounts received by it during the year by way of penalties imposed under this Act.
	(3) The FCA's "enforcement costs" in respect of a financial year are the expenses incurred by it during the year in connection with-
	(a) the exercise, or consideration of the possible exercise, of any of its enforcement powers in particular cases, or
	(b) the recovery of penalties imposed under this Act.
	(4) For this purpose the FCA's enforcement powers are-
	(a) its powers under any of the provisions mentioned in section 133(7A),
	(b) its powers under section 56 (prohibition orders),
	(c) its powers under Part 25 of this Act (injunctions and restitution),
	(d) its powers under any other enactment specified by the Treasury by order,
	(e) its powers in relation to the investigation of relevant offences, and
	(f) its powers in England and Wales or Northern Ireland in relation to the prosecution of relevant offences.
	(5) "Relevant offences" are-
	(a) offences under FSMA 2000,
	(b) offences under subordinate legislation made under that Act,
	(c) offences falling within section 402(1) of that Act,
	(d) offences under Part 6A of the Financial Services Act 2012, and
	(e) any other offences specified by the Treasury by order.
	(6) The Treasury may give directions to the FCA as to how the FCA is to comply with its duty under sub-paragraph (1).
	(7) The directions may in particular-
	(a) specify descriptions of expenditure that are, or are not, to be regarded as incurred in connection with either of the matters mentioned in sub-paragraph (3),
	(b) relate to the calculation and timing of the deduction in respect of the FCA's enforcement costs, and
	(c) specify the time when any payment is required to be made to the Treasury.
	(8) The directions may also require the FCA to provide the Treasury at specified times with specified information relating to-
	(a) penalties that the FCA has imposed under this Act, or
	(b) the FCA's enforcement costs.
	(9) The Treasury must pay into the Consolidated Fund any sums received by them under this paragraph.
	19B (1) The FCA must prepare and operate a scheme ("the financial penalty scheme") for ensuring that the amounts that, as a result of the deduction for which paragraph 19A(1) provides, are retained by the FCA in respect of amounts paid to it by way of penalties imposed under this Act are applied for the benefit of regulated persons.
	(2) "Regulated persons" means-
	(a) authorised persons,
	(b) recognised investment exchanges,
	(c) issuers of securities admitted to the official list, and
	(d) issuers who have requested or approved the admission of financial instruments to trading on a regulated market.
	(3) The financial penalty scheme may, in particular, make different provision with respect to different classes of regulated person.
	(3A) The financial penalty scheme must ensure that those who have become liable to pay a penalty to the FCA in any financial year of the FCA do not receive any benefit under the scheme in the following financial year."

Lord Newby: My Lords, this group of amendments provides for new arrangements for the use of revenue from financial services fines. In future, regulatory fines revenue in excess of enforcement case costs for the year will go to the Consolidated Fund. The new arrangements will apply to all fines imposed by new FCA and PRA and to fines imposed by the Bank of England in the course of exercising its regulatory powers in relation to financial services. This will apply to FSA fines received from 1 April 2012, so the measure will include the penalty imposed on Barclays in relation to the attempted manipulation of LIBOR.
	Under the current arrangements, where enforcement action results in a firm paying a financial penalty, this is applied as a discount to fees paid by other firms in the following year. Without reform, unprecedented fines such as the Barclays fine would have represented a significant windfall to regulated firms. We have of course thought carefully about the impact on those firms which obey the rules. Compliant financial services firms will still be protected from costs directly attributable to the misconduct of others, as the regulators will be able to net off enforcement case costs before handing over penalties to the Treasury and provide a rebate to compliant firms the following year. However, in future, any benefit above these costs will go to the taxpaying public, rather than the financial services industry.
	For this year, the Government have announced that £35 million received this year from fines imposed for attempted LIBOR manipulation and other unacceptable behaviour will be used to support Britain's Armed Forces community. Additionally, £5 million will go towards the creation of the new, ground-breaking First World War galleries at the Imperial War Museum. I beg to move.

Lord Flight: My Lords, I just want to say that clearly the Government could do with the money, but the original arrangements where, in essence, fines revenue benefited the clients of financial institutions-because it is always ultimately the clients who pay for everything-seemed to be fair and appropriate. There is less logic for saying that the fines revenue should benefit citizens as a whole rather than that it should benefit the clients of all the institutions that have to bear regulatory costs, which clearly get reduced if the fines go as they did go. I rather assume that the logic is that the Government need all the revenue they can get, but with whom was this discussed to reach this conclusion? Certainly, at the time of FiSMA, I remember there was quite a bit of debate about the subject and it was concluded that the proposed arrangements then were the fair ones.

Lord Newby: Possibly the new component in the equation is just the scale of the fines that we have seen. The Government took the view that, in those circumstances, the taxpaying public as a whole should get the benefit rather than that there should be a rebate to the industry. I hear what the noble Lord says about policy-holders benefiting from that. Of course, there is a large overlap between people who have financial services products and the electorate as a whole. It is not a complete overlap. It is one of those issues where it is simply a judgment call and the Government's judgment was that, in future, where a significant amount of money is levied as fines, the benefit of that revenue should flow to the community as a whole.
	Amendment 62 agreed.
	Amendment 63
	 Moved by Lord Newby
	63: Schedule 3, page 212, line 34, at end insert-
	"(1A) Anything done or omitted by a person mentioned in sub-paragraph (1)(a) or (b) while acting, or purporting to act, as a result of an appointment under any of sections 166 to 169 is to be taken for the purposes of sub-paragraph (1) to have been done or omitted in the discharge, or as the case may be purported discharge, of the FCA's functions."
	Amendment 63 agreed.
	Amendment 63A
	 Moved by Lord Flight
	63A: Schedule 3, page 214, line 24, at end insert "and to the desirability of ensuring that at least two non-executive members have experience of insurance business"

Lord Flight: My Lords, during the Committee stage of this Bill, I made the point that it would surely be appropriate for the life industry to be represented on the PRA board against the background that the PRA fairly openly was admitting that it did not have much interest in the life industry. It was really concerned with its banking duties. But in the event of severe bear markets in equities, life companies can get into a situation where it is desirable for the solvency rules to be suspended in the short term so as not to have a downward spiral effect on asset values. This amendment simply proposes that there should be at least two non-executive members with experience of the insurance business on the board of the PRA. The Government certainly took the point in principle that the industry should be regulated. This is designed to put modest bones on that. I beg to move.

Lord Hodgson of Astley Abbotts: I will briefly support my noble friend's amendment. There has been quite a lot of talk about how the Bill is oriented towards banking and that particular sector of the financial services industry. The insurance industry-particularly the life insurance industry, which marches to the beat of several different types of drum, one of which, in respect of solvency, my noble friend referred to-needs to make sure that its voice can be heard, because it is such a critical part of our savings industry. While one does not wish to be too prescriptive in the way these bodies are made up, I am sure that some reassurance to the life insurance industry that its particular expertise and particular needs will not be overlooked would be welcome and desirable.

Lord Newby: My Lords, the Government absolutely agree that insurance expertise should be represented on the PRA board. That is why my noble friend Lord De Mauley said when we previously debated this matter that the Bank had committed to that principle and that there would be insurance expertise on the PRA board. However, we believe that it is up to the Bank to ensure that the board has the right balance of skills and experience to enable it to make effective decisions and deliver its objectives in respect of all the firms it regulates. The trouble with the amendment is that if we were to require in the Bill that the board should have insurance expertise, people would rightly ask why the Government had not made similar provision for other sectors such as mutuals and investment banks. We do not think that that is a sensible way to go. However, with the commitment that there will be insurance expertise on the PRA board, I hope that the noble Lord will feel able to withdraw his amendment.

Baroness Noakes: Before my noble friend sits down, when we discussed this matter before, the Minister replied in the same terms as the noble Lord, Lord Newby, has today, and said that there would be insurance expertise on the board. I sought to clarify whether that would include the non-executive component or whether there was a possibility that there would be simply an executive member. Subsequent to the Committee stage, the noble Lord, Lord De Mauley, wrote to me-I am not sure whether the letter has been circulated more widely-to say that the intention was that there would be an insurance non-executive member. Will the Minister confirm that that is still the Government's intention?

Lord Newby: My Lords, nothing has changed since the point at which the noble Lord, Lord De Mauley, wrote his letter.

Lord Flight: Is it felt that a single representative is sufficient in relation to the overall size of the board?

Lord Newby: My Lords, neither the Government nor the Bank have said that there will never be more than one insurance representative on the board. The commitment is the other way round. We have said that there will be at least one insurance representative on the board. At some points there may be more than one, but whether or not that is ever the case, there will always be one. That is the core commitment that we wish to make.

Lord Flight: I thank the noble Lord for his comments and beg leave to withdraw the amendment.
	Amendment 63A withdrawn.
	Amendments 64 to 69
	 Moved by Lord Newby
	64: Schedule 3, page 216, leave out line 13
	64A: Schedule 3, page 216, line 14, at end insert "and of the matter mentioned in section 2H(1)(b)"
	65: Schedule 3, page 216, line 16, after "3I" insert "or 3IA"
	65A: Schedule 3, page 216, line 45, at end insert "and the matter mentioned in section 2H(1)(b)"
	66: Schedule 3, page 218, leave out lines 23 to 26 and insert-
	"27A (1) The PRA must in respect of each of its financial years pay to the Treasury its penalty receipts after deducting its enforcement costs.
	(2) The PRA's "penalty receipts" in respect of a financial year are any amounts received by it during the year by way of penalties imposed under this Act.
	(3) The PRA's "enforcement costs" in respect of a financial year are the expenses incurred by it during the year in connection with-
	(a) the exercise, or consideration of the possible exercise, of any of its enforcement powers in particular cases, or
	(b) the recovery of penalties imposed under this Act.
	(4) For this purpose the PRA's enforcement powers are-
	(a) its powers under any of the provisions mentioned in section 133(7A),
	(b) its powers under section 56 (prohibition orders),
	(c) its powers under Part 25 of this Act (injunctions and restitution),
	(d) its powers under any other enactment specified by the Treasury by order,
	(e) its powers in relation to the investigation of relevant offences, and
	(f) its powers in England and Wales or Northern Ireland in relation to the prosecution of relevant offences.
	(5) "Relevant offences" are-
	(a) offences under FSMA 2000,
	(b) offences under subordinate legislation made under that Act, and
	(c) any other offences specified by the Treasury by order.
	(6) The Treasury may give directions to the PRA as to how the PRA is to comply with its duty under sub-paragraph (1).
	(7) The directions may in particular-
	(a) specify descriptions of expenditure that are, or are not, to be regarded as incurred in connection with either of the matters mentioned in sub-paragraph (3),
	(b) relate to the calculation and timing of the deduction in respect of the PRA's enforcement costs, and
	(c) specify the time when any payment is required to be made to the Treasury.
	(8) The directions may also require the PRA to provide the Treasury at specified times with information relating to-
	(a) penalties that the PRA has imposed under FSMA 2000, or
	(b) the PRA's enforcement costs.
	(9) The Treasury must pay into the Consolidated Fund any sums received by them under this paragraph.
	27B The PRA must prepare and operate a scheme ("the financial penalty scheme") for ensuring that the amounts that, as a result of the deduction for which paragraph 27A(1) provides, are retained by the PRA in respect of amounts paid to it by way of penalties imposed under this Act are applied for the benefit of PRA-authorised persons."
	67: Schedule 3, page 218, line 28, leave out "authorised" and insert "PRA-authorised"
	68: Schedule 3, page 218, line 28, at end insert-
	"( ) The financial penalty scheme must ensure that those who have become liable to pay a penalty to the PRA in any financial year of the PRA do not receive any benefit under the scheme in the following financial year."
	69: Schedule 3, page 220, line 38, at end insert-
	"(1A) Anything done or omitted by a person mentioned in sub-paragraph (1)(a) or (b) while acting, or purporting to act, as a result of an appointment under any of sections 97, 166 to 169 and 284 is to be taken for the purposes of sub-paragraph (1) to have been done or omitted in the discharge, or as the case may be purported discharge, of the PRA's functions."
	Amendments 64 to 69 agreed.
	Consideration on Report adjourned.

House adjourned at 10.23 pm.